RIL refuses to sell gas to power, fertiliser units

Defying an oil ministry directive, Reliance Industries has refused to sell natural gas to power and fertiliser plants by cutting supplies to non priority sectors like steel and refineries saying the move has financial and legal implications.

With output from Reliance's eastern offshore KG-D6 fields dropping by over 20%, a worried oil ministry had asked Reliance to first meet all the contracted demand of fertiliser units, plants extracting LPG from natural gas, power firms and city gas distributing companies selling CNG to automobiles.

Reliance is producing just enough gas to meet the allocation government had made to these priority sectors and implementing the ministry order would have meant stopping supplies to its other customers -- steel plants, petrochemical units and refineries.

Sources said Reliance earlier this week wrote to the ministry saying its order cannot be implemented without the government indemnifying the company against financial cost.

The firm has since July last year imposed a pro-rata cut in supplies on all its customers including fertiliser and power firms.

Sources said Reliance has signed a stringent ship-or-pay contracts with all its customers, wherein it has committed to transport the contracted quantity failing which it has to pay the pipeline transportation cost.

Reliance has so far signed up customers for 60.76 million cubic meters per day of gas while production from KG-D6 fields in the week ending April 3 was about 49 mmscmd. Output is lower than 61.5 mmscmd output achieved in March 2010.

Sources said the company has since July last year imposed a pro-rata cut in supplies on all its customers, including fertiliser and power firms. The ministry had instructed Reliance to supply gas to priority sectors in full and if there is any gas left over it should be given to other sectors on pro-rata basis.

The government had accorded highest priority to fertiliser plants followed by LPG extraction units, power plants and city gas distribution projects in allocating KG-D6 gas.

Sixteen fertiliser plants have been allocated 15.35 mmscmd of KG-D6 gas on firm or permanent basis while 27 power plants in public and private sector have been allocated 29 mmscmd.

A sizeable 7.79 mmscmd of gas has been signed up with steel producers while LPG plants have got 2.59 mmscmd. Refineries including that of Reliance have been allocated 3.46 mmscmd, city gas projects 0.65 mmscmd and petrochemical plants the balance 1.92 mmscmd.