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Deregulation of Diesel Prices; Domestic Gas Price Revised (New Gas Pricing Policy)
Oct 20, 2014

On 18 October, the government approved the issues relating to the under-recovery on sale of diesel and its present status. Now the prices of Diesel will be market determined at both Retail and Refinery Gate level for all consumers thereafter.

Based on an earlier decision of the Cabinet Committee on Political Affairs (CCPA) dated 17th January 2013, instructions were issued to the Public Sector Oil Marketing Companies (OMCs) allowing them to increase the retail selling price of Diesel in the range of 40 paisa to 50 paisa per litre per month till further orders.

Diesel prices will henceforth be market determined. This will facilitate greater competition in the Auto Fuels Retail segment and enhanced efficiency in service delivery of the oil companies. This is expected to benefit consumers due to greater competition among oil companies and more choices. The competition is also expected to foster greater efficiency in oil companies benefitting the consumers.

New Gas Pricing Policy

The government also approved the new domestic gas pricing policy. The salient features of the new Gas Pricing Policy are follows:

  • As per the formulation approved, upward revision in gas prices will be approximately 75 per cent less as compared to the price arrived at using Rangarajan formula.

  • Approximately 80% of the additional revenue due to revision in gas price will go to the Government companies.

  • Government will get additional revenue of approximately Rs. 3800 crore per annum on account of higher royalty, higher profit petroleum and higher taxes.

After the new Government took over, a decision was taken to defer the Domestic Natural Gas Pricing Guidelines, 2014 and to get the matter re-examined.  For this purpose, a Committee was appointed. The Committee has recommended an approach for gas price determination, which is based on the modification to the Rangarajan formula by:

  • Removal of both the Japanese and Indian LNG import components in the formula.
  • Consideration of Alberta Gas Reference price in place of Henry Hub Prices for Canadian consumption.
  • Consideration of Russian actual price in place of National Balancing Point price for the Russian consumption considered under Former Soviet Union (FSU) countries.
  • Consideration of appropriate deductions on account of transportation and treatment charges, etc., for different hub prices.
  • The options of bi-annual and annual price revision instead of quarterly revision may be considered.


The Committee also recommended applicability of the modified approach prospectively and to apply it uniformly to all sectors of the economy, along with prevailing gas allocation policy of the Government.  The Committee was of the view that the National Oil Companies (NOCs) may also get the same price as determined under the proposed dispensation, including the gas from the nomination fields.  In addition, the Committee also drew attention to the fact that although in India gas is historically being priced on National Calorific Value (NCV), the input prices being used in the Rangarajan formula are based on Gross Calorific Value (GCV).


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