Oil Min orders RIL to divert RCF gas to Andhra Pradesh

Under this arrangement, GAIL will make good the shortfall at RCF's Thal plant by supplying imported LNG, sources said

With output from Reliance Industries' KG-D6 fields hitting a new low, the Oil Ministry has ordered the Mukesh Ambani-run firm to divert a part of gas allocated to Rashtriya Chemicals and Fertilizers (RCF) to private power plants in Andhra Pradesh.

The ministry on May 31 ordered that a part of 2.1 million standard cubic metres per day of KG-D6 gas allocated to RCF's Thal urea manufacturing plant be diverted to Hyderabad-based Bhagaynagar Gas Ltd (BGL) and power plants in Andhra Pradesh under a so-called gas swapping arrangement.

Under this, state-owned gas firm GAIL India Ltd will make good the shortfall at Thal by supplying imported liquefied natural gas (LNG), sources privy to the development said.

While BGL and power plants will pay the actual price of imported gas, RCF will pay only $4.2 per million British thermal unit, the rate at which it had contracted KG-D6 gas.

Sources said with KG-D6 output dipping below 15 million standard cubic metres per day, there was hardly any gas left after meeting the requirement of urea manufacturing plants who had been given top priority in receipt of the scarce fuel.

This has led to many power plants in Andhra Pradesh either shutting down or operating a sub-optimal capacities.

So, a swap of KG-D6 gas meant for RCF's Thal plant and LNG meant for BGL or power plants has been ordered.

Sources said the Ministry issued the order an plea made by GAIL on May 28 for swapping of KG-D6 gas with imported LNG.

Ideally, LNG that is to be supplied to BGL or power plants in Andhra Pradesh should have been 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. It connects to all consumers in Andhra Pradesh and once it was handed over LNG, it would have ensured the most economical flow of gas to consumers.

In the current arrangements, the BGL, Andhra power plants, GAIL, RGTIL, RIL and RCF Thal would have to enter into commercial agreements to operationalise the swapping.

In case the gas was given to RGTIL, these would not have been necessary, they said, adding that RGTIL would even in current arrangement earn its transportation cost.

"The above 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 arragement will be borne by the beneficiary entity," the ministry order of May 31 said.

Previously, the ministry had in 2012 ordered a part of 2.594 mmscmd of KG-D6 gas allocated to GAIL's LPG plants to be diverted to BGL. With output falling, there is hardly any gas going to GAIL's LGP plants. RIL had opposed this saying swapping tantamounted to trading of gas and was illegal.