NTPC, RIL to go in for gas swap for easing Andhra power woes

NTPC and Reliance Industries (RIL) will soon enter into a complex deal to ensure supply of more gas to Andhra Pradesh power projects. Gas marketer and transporter GAIL, too, will be a part of the arrangement.

The deal will involve NTPC power plants in North India getting regassified liquefied natural gas (RNLG) through the GAIL pipeline, while its quota of gas from RIL’s D6 block off the east coast will be supplied to Andhra power plants.

A senior power ministry official told Business Standard NTPC had agreed “in principle to the deal” and an agreement would be reached by the month-end.

NTPC and GAIL get gas from the D6 block. While NTPC uses the gas for its power plants in North India, the government has allotted GAIL gas for its petrochemical plant at Pata in Uttar Pradesh.

Since there is no regassification terminal on the east coast, Andhra power plants’ access to gas is limited to domestic sources, including D6. This creates a shortage, especially as production from D6 has fallen to less than 50 million standard cubic metre a day (mscmd) from 62 mscmd in March 2010.

“The swapping will be for the volume that is actually supplied. This will optimise use of pipelines as D6 gas will not need to travel from east to west and RLNG from west to east,” said an official.

Though RIL was reluctant to enter into such an arrangement in view of its dispute with the UP government on taxation, the change of guard at the petroleum ministry has helped. Minister Jaipal Reddy belongs to Andhra Pradesh. This will be the second such arrangement for .RIL It signed a similar deal with GAIL last month for swapping gas from D6 with RLNG.

Since the UP government has sought payment of value-added tax at the rate of 21 per cent on sale of D6 gas in the state, the government is working on roping in GAIL. “As GAIL is a supplier of RLNG and domestic gas, the tax incidence can be reduced, though the UP tax authorities can say they will demand tax on the RLNG price,” said another government official. With taxation still a grey area, the agreement will have a clause that any additional tax burden on account of such sales will be borne by the power producers in Andhra Pradesh

NTPC has so far managed to sign a gas sales and purchase agreement for 2.29 mscmd with RIL, though it has been allotted 4.46 mscmd gas. At present, the biggest power producer in the country is using D6 gas at Faridabad and Dadri. With Andhra Pradesh power producers set to get 2.29 mscmd additional gas, about 600 Mw more will be generated this summer.

Interestingly, the deal will be signed even as NTPC is fighting with RIL over the ‘take or pay’ liability for supplying additional D6 gas.