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The Gujarat high court has directed the state government to pass necessary laws to make it compulsory for all four-wheelers registered in Gujarat to convert to natural gas within a year. It further directed the Central government to allot natural gas for domestic and vehicular use to Ahmedabad at the price it is supplied to Delhi and Mumbai.
The order, passed on July 25 by Chief Justice Bhaskar Bhattacharya and Justice J B Pardiwala, was in response to a petition filed by Dhrangadhra Prakruti Mandal, a non-profit working on environmental issues, and Gujarat Rajya Autorickshaw Federation. The petition contended that most of the state’s Compressed Natural Gas (CNG) is used for industrial purpose and demanded additional quota of the gas for domestic and vehicular use for the state at the administered price mechanism (APM) rate. This rate is fixed by the government much below the market price to help improve the environment. This is the rate at which Delhi and Mumbai get CNG.
In Ahmedabad, CNG costs Rs 53 per per kg, while in Delhi it costs Rs 38.35 per kg. The petitioners said that air pollution levels in Ahmedabad are as high as in Delhi and Mumbai. They argued that the price difference was due to the “discrimination of the Centre” towards Ahmedabad, where the courts have made it mandatory for auto-rickshaws to use CNG.
The judges suggested that gas prices should be cheaper for public vehicles and higher for privately owned vehicles. For this, the state government will have the liberty to impose additional tax on sale of CNG on private vehicle owners to make gas cheaper for public vehicle owners. Also, fares of public transport should be reasonable so that the end benefit goes to the public.
Supply hiccups
It is expected that increased use of gas at APM rates will bring down the prevailing CNG price in Ahmedabad by Rs 9-10 per kg. However, APM’s increased demand is becoming a contentious issue in India. States are moving away from using natural gas at APM rates because of lack of supply.
Further, absence of a comprehensive fuel policy for the CNG sector has led to varying prices of the natural gas across the country. The government gives priority to the power and fertiliser sectors when APM rates are to be allotted.
CNG comes under city gas distribution category, fourth in the priority list after fertiliser, LPG and power. The power and fertiliser sectors generate about two-thirds of the present gas demand.
According to Amit Panchal, legal counsel for Dhrangadhra Prakruti Mandal, in an earlier case the Supreme Court had directed the Centre to give priority to vehicular use of CNG during allocations. “Therefore, gas supply should be prioritised to reduce dependence on petrol and diesel to make it more economical for vehicle users,” he said.
Data of the Ministry of Petroleum and Natural Gas shows that between 2009 and 2010, the country used 146.15 million metric standard cubic metre per day (mmscmd) of gas. While domestic production of CNG in that year was 130.16 mmscmd, the country imported about 20 per cent of its total consumption. It is now to be seen how domestic demand is met as Reliance Industries’ Krishna-Godavari D6 (KGD6), which is the biggest natural gas reserve in India, has not produced as much natural gas expected. Its output in June-end was 30.82 mscmd, far from the expected output of 80 mmscmd.
Market sources indicate that until KGD6 recovers, or other sources of domestic production are developed, cities will be starved of CNG. The present need of cities is miniscule compared to the total consumption, but the sector is growing.
The additional demand may have to be met by regasified liquefied natural gas (RLNG), KGD6 or APM. RLNG is linked to global crude oil price. Market sources indicate that due to persistently high crude oil prices, RLNG is set to get costlier, from US $9.5 per mmbtu (million metric British thermal unit) to US $16/mmbtu. There is a large price difference today between domestic and imported natural gas. Domestic gas is priced at US $4.2 to $5.5 per mmbtu.
Market forecasters project that in future years, the incremental domestic demand will exceed the potential incremental domestic supply. This means import of natural gas will have to increase. However, this means the prices will increase.
Petitioners in Gujarat had argued for increased supply at lower prices. The taxation issue, however, remains unattended. The Gujarat government levies 15 per cent VAT on CNG, the highest in the country. So far, there is no proposal from the state government to exempt or reduce tax on CNG. Delhi has given VAT exemption to CNG. The VAT rate in Haryana is 5 per cent, in Uttar Pradesh it is 13.5 per cent and in Maharashtra it is 12.5 per cent. This shows that states need to initiate action to keep CNG rates low while increasing tax on diesel in cars.