Those against gas price hike don't know economics 101: Chidambaram
Finance Minister P Chidambaram on Wednesday said people who are opposing the government's decision to nearly double gas prices from April 1, 2014 don't know the basics of economics.
"The argument that marginal cost of producing one unit is $1 and why it should be priced at over $8 should be rejected. It betrays complete ignorance of economics," Mr Chidambaram told NDTV's Barkha Dutt.
Mr Chidambaram's criticism was aimed at former Delhi Chief Minister Arvind Kejriwal, on whose complaint an FIR was registered against Reliance Industries chairman Mukesh Ambani and other officials and ministers, last week. Mr Kejriwal had asserted that Mr Ambani, Union Oil Minister Veerappa Moily and other policy-makers colluded to inflate the prices of gas produced from the D6 block off the eastern coast.
The government first announced a hike in gas prices from April 1, 2014 in June 2013. But in December 2013, Reliance Industries was allowed to charge higher rates from April 1, 2014 after the company offered financial guarantees to settle any claims against it over a shortfall in its gas output.
Reliance, which operates the D6 block, has reported a sharp decline in gas output since 2010. It has blamed geological complexities for the fall in output, but the oil regulator believes they failed to drill enough wells.
Mr Chidambaram said the choice today is between buying one unit of gas at $14 (which is the price of natural gas in global markets) and giving the producer an $8 price.
"This argument that cost is $1 and you are paying $8 is a misplaced argument. Anyone who is acquainted with 101 economics will know it has to be rejected," the finance minister said.
Mr Chidambaram said questions that the government's auditor CAG has raised about Reliance violating the terms of the contract, are being addressed separately.
"We have imposed penalties on the company. We have taken bank guarantees for the gas that they failed to deliver according to us, but pricing of gas is a separate issue. It has nothing to do with a company," Mr Chidambaram said.
The finance minister said state-run ONGC will be the biggest beneficiary of the gas price hike as it produces about 75 per cent of domestic gas.