Kirit Parikh Panel On Natural Gas: All You Need To Know

The Indian government has expressed a keen desire to making India a gas based economy. In fact, they have planned gas infrastructure investment to the tune of 60 Billion USD by 2024. This is in line with the goal of including natural gas in India's energy mix to 15 per cent by 2030. Additonally, some estimates reveal India needs 175 million cubic meter of gas a day, especially in the fertiliser industry which consumes about 34 per cent of this quantity. Realising this, the government has constituted ‘Kirit Parikh’ Panel. 

What is Kirit Parikh Panel?

It is a commitee constituted by government of India under energy expert Kirit Parikh in September 2022. The agenda of this committee is to review pricing formula for locally produced gas. This is a necessity given the rising energy prices, increase cost of energy production, and ever escalating inflation. The committe consists of both public and private players like representatives from GAIL, IOCL, and Ministry of Fertiliser. 

The committee is to recommend a fair price to end-consumers, while suggesting a market oriented pricing regime. A secondary agenda can be to boost clean energy usage, which will be in line with the government's agenda to achieve net zero carbon target by 2050. These recommendations will not be used for the next six months revision of gas prices, that is, from October 2022 to March 2023.

What are the key recommendations of the panel?

• India should have completely free and market-determined pricing of natural gas extracted from legacy fields. In india's case it will be over 70 per cent of the total natural gas. 
• Linking the price of gas produced from legacy fields to imported crude oil prices. Presently, they are benchmarked to gas rates globally. 
• The panel recommended price band of 4 to 6.50 USD per unit for gas from old legacy field. The base price for every player is set minimum at 4 USD. This will also help regulate CNG and cooking gas prices. The panel also recommends increasing the ceiling rate for the gas from legacy fields by 0.5 per mmBTU.

• It did not recommend any changes in the existing pricing formula for fields in difficult geology like KG-D6 of Reliance Industries. However, they have recommended price ceiling of 12.46 USD. This is a temporary move, and LNG fields located in difficult terrains will have complete pricing freedom from Janurary 1, 2026. 
• With respect to GST, the panel recommeds subsuming excise duty charged by the Centre and VAT by states under the GST umbrella. They were also in favour of moderating excise duty. 
• The panel also address states’ concerns of revenue loss. It will now be under the 'one nation-one-tax' regime. They are in favour of setting up a mechanism similar to the 5-year compensation which was brought about when GST was implemented. The states were awarded suitable compensation to compensate for tax loss. 

We can see the panel's inclination is towards market determined prices as against heavily regulated prices, while suggesting a floor and cieling gas price for the same. It will be capped at USD 6.5 for legacy or administrative price driven fields and USD 12.46 for administrative fields.

This move comes at a time when the world is facing the impact of Russia-Ukraine war, making access to natural gas even harder. In this backdrop, India is gradually experiencing rise of private sector players in natural gas, and it is needed that the government works hand in hand with these players to provide the best outcomes. If the recommendations of this committee are taken up, it will result in reduced CNG gas prices and reduced subsidy by the government.