Will CNG and PNG prices rise after 43% CBG price hike? Government responds

The government's decision to raise the procurement price of Compressed Biogas (CBG) by around 43 per cent has triggered concerns over its possible impact on CNG and household piped natural gas (PNG) prices.

Responding to these concerns, the Ministry of Petroleum and Natural Gas on Saturday said the assessment that the revised CBG price would place a significant additional burden on CNG and PNG consumers was based on inconsistent assumptions.

According to the ministry, the government will bear part of the additional cost, while the remaining cost will be spread across a much larger pool of domestic gas.

Will the revised CBG price increase CNG and PNG prices?

Under the revised GOBARdhan framework, the CBG procurement price has been fixed at Rs 2,110 per MMBtu.

Under the existing mechanism, the price paid to CBG producers works out to around Rs 1,478 per MMBtu, an increase of around 43 per cent.

However, the ministry said this does not mean CNG and PNG consumers will directly face a similar increase, as the procurement price is not the price paid by consumers.

Government to bear part of the additional cost

The government will provide affordability support of Rs 10 per kg of CBG. For CBG containing 95 per cent methane, this is equivalent to around Rs 215 per MMBtu.

This support will be funded by the government, reducing the amount that needs to be recovered from gas consumers.

After accounting for the support, the effective cost works out to around Rs 1,895 per MMBtu, compared with the prevailing Rs 1,478 per MMBtu.

The ministry said this brings the effective increase down to around 28 per cent.

Why the impact on CNG and PNG consumers may be lower

There is another factor that could reduce the burden on CNG and PNG consumers, according to the ministry.

Earlier, the cost of CBG was distributed only across the limited quantity of APM gas allocated to CNG and domestic PNG consumers.

Under the new framework, the cost will be spread across a domestic gas base that is around 2.5 to three times larger.

In simple terms, instead of recovering the additional cost from a smaller group of gas consumers, the revised system will distribute it across a much larger pool.

The ministry said concerns about a major additional burden on CNG and PNG consumers do not account for government support and the larger gas base over which the cost will now be distributed.

While the ministry has explained why the 43 per cent increase in CBG procurement price should not be directly linked to consumer prices, the clarification does not specify how much, if at all, CNG or household PNG retail prices could change.

With IANS inputs