Power firms queue up for KG-D6 gas

Power companies are queuing up to renew GSPAs with RIL, despite high-drama surrounding the signing of the new agreements

Despite gas supply to the power sector from KG-D6 (the D6 block in the Krishna-Godavari basin) dropping to nil, power companies are queuing up to renew gas sales purchase agreements (GSPAs) with the Mukesh Ambani-led Reliance Industries Ltd (RIL), the operator. The rising interest from power companies comes amid uncertainties regarding the signing of new GSPAs.

Currently, only fertiliser companies get gas from the KG-D6 block — 13.5 million standard cubic metres a day (mscmd). The existing GSPAs are set to expire on Monday.

At a meeting on Friday, all the 10 contentious issues, except two, were resolved. "Only issues related to the marketing margin and uncertainties surrounding the new pricing are left. We are hopeful of resolving these by Monday," said a senior official from the Fertiliser Association of India (FAI).

Representatives from RIL, Reliance Gas Transportation Infrastructure, GAIL and fertiliser and power producers attended the meeting, convened by the petroleum ministry. This followed a letter by the fertiliser ministry seeking the intervention of its petroleum counterpart to end the stalemate.

It is likely three sets of GSPAs will be signed — with RIL, foreign partners BP and Niko Resources and customers. Customers are expected to sign fresh GSPAs, with the prices likely to be determined later.

Currently, there are 50 GSPAs for KG-D6 gas in the liquefied petroleum gas, fertiliser, power and city gas sectors; these were signed in 2009. Of these, fertiliser companies account for 16, while 28 are with power companies. Only four of the 28 GSPAs signed with power companies were executed.

"All these power companies are keen to sign GSPAs, as the gas supply of 25 mscmd is in place. There is still hope production from KG-D6 will increase. That is probably one reason why RIL is batting for a higher price," said Ashok Khurana, director-general of the Association of Power Producers.

Supply to the power sector was stopped after a drastic fall in production from KG-D6, compared to the estimated production. During the four years ended 2013-14, the total production shortfall, against the estimated amount, was 154 mscmd — five mscmd in 2010-11, 28 mscmd in 2011-12, 55 mscmd in 2012-13 and 66 mscmd in 2013-14.

Early this week, RIL had softened its stand, saying it would provide GSPAs for a longer term of five years. According to the FAI official quoted earlier, the pricing would be based on the pricing notified by the government.

"For the moment, the term period might be for a year. RIL is expected to come up with its revised terms by Monday," the official said.

Among the hurdles related to GSPAs are FAI's demand to retain the clause on shipping liability and assurance on long-term supply to consumers.