The group of ministers on natural gas pricing will meet on July 23 to deliberate on raising the gas prices after four-years of government cap.

GoM will discuss increasing the domestic natural gas prices from the current cap of Rs 2,850 per thousand cubic meters to a level "acceptable to the major consuming power and fertiliser sectors," official sources said in New Delhi on Tuesday.

A committee of secretaries, which had representation from the ministries of finance, petroleum, power and fertiliser, had last month recommended an immediate hike in domestic natural gas prices to Rs 3,250 per thousand cubic meters.

The Rs 400 per thousand cubic meters raise would marginally lead to an increase in the cost of production of power and fertilisers.

The GoM meeting will discuss the recommendations, they said, adding the decision of the meeting would then go to the Cabinet for final approval.

Interestingly, the Planning Commission has stipulated an upper limit of Rs 3,500 per thousand cubic meters for hiking the gas prices.

The CoS had also recommended maintaining the gas price at Rs 3,250 per thousand cubic meters for the next two years, while allowing Oil and Natural Gas Corporation to sell gas from joint venture fields at market rates.

However, the market based pricing would not apply on the 1 million standard cubic meters per day of gas produced from the Cairn Energy of UK-operated Ravva field "as it will have a severe impact on the power consumers in Andhra Pradesh."

The new price would be applicable for the next two years and can be extended by another two years. The CoS recommended that "in the meantime, the Tariff Commission or an appropriate committee may be asked to look into the cost of production and other related issues for deciding a reasonable price for the domestic gas produced by ONGC/ Oil India Ltd."

The CoS, sources said, has favoured the de-linking of gas produced from joint venture fields like Panna-Mukta and Tapti on the West coast, which is fed to the HBJ pipeline system.

"For new fields and additional production of gas over and above the current level of production by ONGC and Oil India Ltd, the price will be de-linked from the administered price mechanism and would be market determined," it suggested.

At the CoS deliberations, the petroleum ministry wanted price to be raised to Rs 3,850 per thousand cubic meters but the ministries of power and fertiliser conceded an increase of only Rs 400.

Under the current policy, gas produced by ONGC and OIL is capped at Rs 2,850 per thousand cubic meters. Gas produced from JV fields like Ravva, Cairn Energy of UK (operator of the field) is paid international price, while ONGC sells the same gas to its customers at the cap price, thereby providing a subisidy of Rs 1,300 crore (Rs 13 billion) annually.

At the CoS meeting last month, ONGC contended that the present gas price worked out to only Rs 2,260 per thousand cubic meters whereas the cost of production was around Rs 2,920 per thousand cubic meters.

"ONGC has to pay the JV price differential, spend on enhanced oil recovery and improved oil recovery activities, and also contribute to the gas pool account. The sale price of ONGC should be increased to Rs 4,073 per thousand cubic meters," it said.