Myth 10: CNG prices should be hiked to recover the costs of investment
Both Ram Naik and the managing director of IGL, A K Dey, have issued statements to the press that CNG prices would have to be hiked to recover the cost of investment. On July 26, 2001 The Times of India reported Ram Naik saying that the cost of CNG would be substantially higher than diesel when the requirement would be met through liquefied natural gas (LNG) imports. IGL has made large investments for setting up CNG stations and is incurring loss in Delhi.

Shortly after taking over office Mr Dey had made a presentation before the Union Minister of Petroleum, Ram Naik, wherein he had advocated an increase in the price of compressed natural gas (The Statesman, July 23, 2001).


Fact

Ram Naik has gone on record to say that the price of CNG would have to be hiked as IGL has made large investments for setting up CNG stations in Delhi. This claim defies logic as IGL is making profit from the very first year of its operation and only recently an excise duty has also been slapped on it to raise revenue. Clearly, Naik hasn’t yet learnt his lessons of how to promote cleaner fuels with the help of fiscal instruments to make them more competitive in the market.

Just as the CNG market is picking up MOPNG plans deviously to decimate the market by increasing the prices. The recent murmurs in the media and the various submissions to the EPCA are evidences to the short-sightedness of the ministry.

The annual report of IGL shows that the company has been making profit right from the first year. It is showing profits even after taking depreciation and payment of taxes into account. IGL showed a profit of more 35 lakh in the year 2000 and in 2001 has shown a profit of more than one crore.80

One of the most hackneyed arguments given by both IGL and MOPNG about the issue of price rise is that if MGL in Mumbai can increase prices so much why should Delhi lag behind. In fact, A K Dey admitted that IGL had the opportunity to hike CNG prices in the past but the previous MD and chairperson preffered not to do so. After joining office in June 2001, Dey made a presentation to MOPNG that CNG prices should be raised for the financial health of IGL although he refused to disclose when and by how much. But he assures that IGL would not increase CNG prices as long as the commuters are facing difficulties and have to stand in long queues.

It seems to elude both IGL and MOPNG that the comparison with MGL is not fair as MGL in Mumbai is running into losses and so they have had to increase the price of CNG to recover losses. This is essentially because they are running their equipment at 30-40 per cent of their capacity where as IGL is not. Moreover, most of the price increase is because of the higher tax burden on CNG in Mumbai compared to Delhi. In Delhi there is no sales tax on CNG as compared to sales tax of Rs 2.43 in Mumbai. (see table 15: Raking in money).

In any case according to guidelines of MOPNG, CNG should be priced in such a way that the owner of the vehicle can recover the cost of the CNG conversion kit in two years. IGL has priced CNG in such a way that the price of conversion kit for a diesel vehicle that is more expensive is recovered in two years.

Market watchers contend that as the main input of CNG is natural gas so if the price of natural gas does not increase there is no way that the price of CNG should increase. Besides volume of demand in Delhi is so high that it is unlikely that IGL will ever run into losses.

Ram Naik in a recent statement to Parliament has said “the cost of CNG would be substantially higher than diesel when the requirement would need to be through liquefied natural gas imports.”

This can only come from a government that has no experience or feels no urgency to learn the basics of fiscal management to influence fuel choices in the market. World over cleaner fuels like CNG have lower prices compared to conventional fuels like diesel that have always attracted higher taxes. Moreover, in the US, practically all the states have their own financial incentive schemes to bring in more natural gas vehicles besides the federal schemes.

IGL sources say that even with import of LNG per kg increase in prices will be minimal as the volume of sales is going to be much larger. Prices may increase when the administrative price mechanism is dismantled completely and 100 per cent import price parity is maintained. But even then gas prices will remain lower than petrol and diesel prices.

A suggestion to increase price of CNG can only come from a government that has no experience or feels no urgency to learn the basics of fiscal management to influence fuel choices in the market