Oil ministry asks RIL to divert part of RCF gas to Andhra power plants

The ministry of petroleum has directed Reliance Industries Ltd (RIL) to sell part of the gas allocated to fertiliser maker RCF to private power plants in Andhra Pradesh, at the import price of gas against the $4.2 per million British thermal units that PSU fertilizer units pay.

The move comes after the Mukesh Ambani-led firm reported a further decline in gas production at its KG-D6 block off the east coast of India.

In its order dated 31 May, the ministry allowed RIL to divert part of the 2.1 million standard cubic metres per day of KG-D6 gas allocated to RCF's Thal urea manufacturing plant to Hyderabad-based Bhagaynagar Gas Ltd (BGL) and other power plants in Andhra Pradesh under a so-called gas swapping arrangement.

BGL and power plants will pay the actual price of imported gas for RIL gas against the $4.2 per million British thermal unit that RCF pays for the KG-D6 gas contracted by it.

Under the swap arrangement, state-owned gas firm GAIL India Ltd will make good the shortfall at the Thal fertilizer unit of RCF by supplying imported liquefied natural gas (LNG), reports quoting official sources said today.

With RIL gas output at the KG-D6 field plummeting to 15 million standard cubic metres per day, there was hardly any gas left after meeting the requirement of urea manufacturing plants, which has top priority in RIL gas allocation.

This has left power producers in the lurch with several power plants in Andhra Pradesh opting to shut down or operate at sub-optimal capacities.

Sources said the swap arrangement has been allowed on a plea by state-run GAIL seeking the petroleum ministry's approval for swapping of KG-D6 gas with imported LNG.

LNG that is to be supplied to BGL or power plants in Andhra Pradesh could be handed over to Reliance Gas Transportation Infrastructure Ltd's (RGTIL) in Gujarat or Maharashtra where the costlier fuel is imported.

RGTIL owns a 1,400-km pipeline that carries KG-D6 gas from Andhra coast to Gujarat and could ensure the most economical flow of gas to consumers.

However, for direct supplies, BGL and other private power plants in Andhra Pradesh will have to enter into commercial agreements with GAIL, RGTIL, RIL and RCF Thal to operationalise the swap arrangement.

"The swapping arrangement is subject to the condition that RCF will not have any additional financial burden and any additional financial implication (like additional transportation tariff, additional tax libility etc) arising out of this swapping arrangement will be borne by the beneficiary entity," the ministry said in its order of 31 May.

The petroleum ministry had, in 2012, ordered that a part of 2.594 mmscmd of KG-D6 gas allocated to GAIL's LPG plants be diverted to BGL.

RIL had opposed this saying swapping was tantamount to trading of gas and was illegal.