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| Fertiliser, power firms to benefit from KG gas ruling |
| Kalpana Pathak / Mumbai Feb 02, 2009, 00:05 IST |
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Around 20 fertilizer and power companies stand to gain from the Bombay High Court order, allowing Mukesh Ambani-led Reliance Industries to sell gas from the Krishna-Godavari (KG) basin at $4.20 per million British thermal unit (mBtu). The court, however, reserved a final judgment in the case, brought by Anil Ambani-run Reliance Natural Resources (RNRL).
The court in its order on Friday said, “RIL shall be at liberty to sell or dispose of the natural gas…to such parties as may be directed by the government.”
According to sources, the government has provided a list of 20 companies to Reliance Industries (RIL) for sale of gas as per the gas utilisation policy. Some of these companies include Nagarjuna Fertilizer & Chemicals, Chambal Fertilizers & Chemicals, Tata Fertilizers and Oswal Chemicals & Fertilizers among others.
A government source also informed that the empowered group of ministers (EGoM) has decided that while power plants in Andhra Pradesh would be given gas at 70 per cent PLF (plant load factor), others would get at 60 per cent PLF. The window has been provided only for 45 days till the court pronounces the final judgment in the legal row between RIL and RNRL over supply of gas from the KG basin to the latter’s 7,480 MW gas-based power project at Dadri, Uttar Pradesh.
Fertilizer and power companies have welcomed the move.
“Our plant is dual fuel-based, using naphtha and gas. At present, we are operating at full capacity on naphtha. Though we would require gas less than 1 unit, it being a cheaper fuel will improve our working capital situation,” said Ajay S Shriram, MD, Shriram Fertilizers and Chemicals.
Power and fertiliser plants consume 70 per cent of the gas available in the country. However, inadequate supply of gas forces them to operate at 50-60 per cent of capacity.
However, the MoU that RIL had signed with some of these companies prior to the court order will be modified to accommodate the changes.
“Earlier MoUs will be redundant now. New term sheets will be brought (with these companies) in line with the new order,” said a legal expert from RIL’s team.
While it is a major relief to India’s largest company by market cap, for the market, uncertainty looms over the supply of gas beyond the 45-day period. Industry experts, however, say that once RIL monetises its gas field, it will be difficult to discontinue the gas supply. “Even if the gas supply disconnects after 45 days, on a two-hour notice, the fertilizer and power companies can shift to alternative fuel and feed stocks,” said Deepak Mahurkar, associate director, Oil & Gas Industry Practice, PricewaterhouseCoopers.
Reliance is set to begin producing gas from its D6 block in the eastern coast of Krishna Godavari basin later this month. Initial production from the block is likely to be around 20 million cubic meters per day (mcmd). Production is likely to be ramped up to peak rate of 80 mcmd within a year of start of production.
On Friday, while the Sensex was up 2 per cent, RIL’s scrip closed at Rs 1325.20, up 4.51 per cent. Chambal Fertilizers and Chemicals closed at Rs 38.55, up 4.76 per cent and Nagarjuna Fertilizer and Chemicals was up 6.91 per cent at Rs 16.25.
The court decision came after market hours on Friday.
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