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BW Businessworld

A Question Of Priority

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Reliance Industries' controversial decision to keep the gas production from the premier KG D6 block down has put all the fifty odd suppliers in a tizzy.

Moreover, sensing the courtroom's mood, where government officials may be asked to review the priorities of the sectors where gas has to be supplied, corporate entities have already started lobbying for their respective segments.

This includes Reliance Industries Ltd (RIL), whose two petro-chemical plants are getting only 20 per cent of the allocated gas. However, RIL is pushing its case hard with the ministry of petroleum and natural gas to bring petro-chemical within the ambit of priority segment.

The company, reportedly, has demanded preferential treatment in allocation of gas from its Andhra offshore field on the ground of being the producer. The company has written a letter to the Petroleum Minister S Jaipal Reddy seeking preferential allocation of gas for their Jamnagar refinery as well as the petrochemicals units at Dahej and Nagothane, all in Gujarat.

An EGoM, earlier scheduled for the first week of July, was "deferred indefinitely" to save the government from the blushes at the court. The EGoM may now be rescheduled for the first week of August.  

Add to this, sponge iron players like Welspun, Essar Steel and Ispat have also moved court seeking directions for ensuring gas supplies to their respective plants. They have been facing 80 per cent cut in supplies, since the May 2011 orders of the Ministry for Petroleum and Natural Gas after KG D6 depletion.

Post the orders, Reliance has been asked to meet the entire requirement of consumers in the priority sectors of fertiliser, power, city gas distribution and LPG plants and told to supply to non-core sectors only if there is gas left after that.

As per records, the priority sector has been allocated 47.5 mmscmd of KG-D6 gas, leaving very little for non-core users. This worries the refineries as Indian Oil, country's biggest oil marketing company, has already shown its inability to control deficiency in diesel pool if gas supply to its refineries are not maintained. The sector has allocation for 5 mmscmd gas. But while gas supply agreements have been signed for supply of 3.46 mmscmd gas, they are getting only 0.69 mmscmd gas. "This (supply) is nothing. Petroleum products are one of the most essential items for the nation. We need to formulate a policy for the allocation of gas, and understand that refineries are much high on priority," said an IOC official.

However, Petroleum and Natural Gas Regulatory Board chairman Labanyendu Mansingh is pushing hard to keep city gas distribution (CGD) in the core sector. The players from other sectors are pushing that the gas from CGD could be cut to ensure their supplies, or at least increase the throughput. Mansingh says CGD is not only allowing cleaner gas for consumers but is also an alternative for the LPG, which is highly subsidized, and more CGD penetration would mean saving of national resources. 

It could be added that three years ago, in May 2008, anticipating that the gas find in D1 and D3 wells along with the MA fields at the KG D6 block will yield a throughput of more than 65 mmscmd gas, the government had set the priority

for allocating gas to nearly 60 projects keeping sensitive sectors like fertilizers and power in the core. The rest include city gas distribution, refinery, Liquefied Petroleum Gas plants, steel and petro-chemicals. They had allocated on the assumption of the demand at approximately 63 mmscmd gas. But for the last seven months, the output from this field could not peak 47 mmscmd.

Although, the rivals of RIL say the company is deliberately keeping the production low for commercial gains, the company has another story to tell.