On the basis of the suggestions made by the Rangarajan committee, the Cabinet Committee on Economic Affairs (CCEA) decided to raise the price of domestic natural gas, from $4.2 to $8.4 a million British thermal unit (mBtu), from April 2014.
Once the new price is adopted, it would be revised on a quarterly basis for a period of five years, reports indicate.
The decision to hike gas price could benefit oil and gas firms like ONGC, OIL, Reliance Industries (RIL) and Cairn India.
Some reports indicate that the price increase to $8.4 an mBtu will add Rs 21,000 crore annually to the profits of these companies.
In order to immunise the power and fertiliser sectors from the gas price hike, the government may bear the losses of these sectors from this decision. The government is yet to decide on the quantum of losses to be borne by it.
While the fertiliser subsidy might rise by Rs 13,200 crore a year following the gas price hike, power projects dependent on natural gas may incur a loss of Rs 42,000 crore, reports indicate.
The Rangarajan panel had proposed a pricing mechanism that would take an average of the US, Europe and Japanese hubs and then average it out with the netback price of imported liquefied natural gas (LNG) to decide the sale price of gas produced domestically.
Meanwhile, a committee under the Vijay Kelkar is working on a road map for gas pricing after 2016-17.