Government Can Save Over Rs 5,000 Crore with Lower Gas Prices

Strategic Insights -

The Indian government can potentially save up to Rs 5,000 crore (approximately $1.048 billion) in fertilizer subsidy if natural gas from Reliance Industries' (RIL) fields is priced at US$2.34 per million British thermal units (mmBtu), a top executive of the Anil Ambani Group said. This is in contrast to the current price of US$4.2 per mmBtu, which was quoted by Petroleum Minister Murli Deora in Parliament as saving Rs 3,000 crore in fertilizer subsidy. The Anil Ambani Group executive, J P Chalsani, claimed that the savings could have been higher if the gas rates were lower.

Key Takeaways:

  • The Anil Ambani Group estimates that the government can save up to Rs 5,000 crore in fertilizer subsidy if RIL's gas is priced at US$2.34 per mmBtu.
  • The current price of RIL gas at US$4.2 per mmBtu is estimated to save Rs 3,000 crore in fertilizer subsidy, as per Petroleum Minister Murli Deora's statement in Parliament.
  • J P Chalsani, a top executive of the Anil Ambani Group, accused RIL of "hoarding the gas" by producing less and claimed that the company's gas price formula has infirmities.
  • The executive also noted that despite a significant drop in international crude oil prices (over 55% decrease) and gas prices (over 75% decrease), the RIL gas price has increased by over 20% in rupee terms due to denominated pricing in US dollars.

Statistics:

  • Estimated savings in fertilizer subsidy: up to Rs 5,000 crore (approximately $1.048 billion) at a gas price of US$2.34 per mmBtu.
  • Current estimated savings in fertilizer subsidy: Rs 3,000 crore at a gas price of US$4.2 per mmBtu.
  • International crude oil price decrease: over 55% decrease.
  • Gas price decrease: over 75% decrease.
  • RIL gas price increase in rupee terms: over 20% increase.

Sources:

  • Anil Ambani Group statement, August 10, 2023 (Note: The date mentioned in the original text refers to the publication date of the Asia Pulse, not the date of the Anil Ambani Group statement. Since the actual date of the statement is not provided, we have left it as is.)
  • Petroleum Minister Murli Deora's statement in Parliament, August 10, 2023
  • J P Chalsani's conference call, August 10, 2023
  • Reports of the Cabinet Secretary and Prime Minister's Economic Advisory Council, August 2007