RIL ordered to stop KG-D6 gas supply to non-core users

Admonishing the defiant Reliance Industries, the Oil Ministry has ordered the Mukesh Ambani-run firm to immediately stop natural gas sales to non-core users like Essar Steel to meet the full demand of fertiliser and power plants.

Citing the May, 2010, Supreme Court ruling that upheld the government's right to frame gas utilisation policy, the ministry last week wrote to Reliance directing it to first supply natural gas from its KG-D6 fields to priority sectors like fertiliser and power, official sources said.

Reliance is currently producing around 50 million cubic metres a day of gas from its eastern offshore KG-D6 gas block, just enough to meet contracted demand of priority sectors -- urea manufacturing units, power plants, LPG extraction plants and city gas distribution companies.

It had refused to abide by the ministry's previous order that wanted the fuel to go to sectors like steel, refineries and petrochemical only if there was any gas left after meeting demand of core sectors.

Non-core sponge iron plants, petrochemicals units and oil refineries have cornered 13.13 mmscmd out of the 60.76 mmscmd of KG-D6 gas that the government had allocated in 2008 and 2009.

With production dipping to around 50 mmscmd, a worried Oil Ministry wanted the fuel to first go to core sectors.

But Reliance has refused to follow the dictat and has continued to follow the July, 2010, policy of pro rata allocation, translating into proportionate cuts in supplies to all consumers, including urea-making plants and electricity generation units, they said.

A Reliance spokesperson could not be immediately reached for comment.

With production just a tad above the 47.59 mmscmd quota allocated to core sectors, Reliance says it cannot stop supplies to any customer unless the government indemnifies it against any legal and financial damages arising from such action.

Sources said the ministry was not impressed by the firm's reasoning and cited the Supreme Court's ruling to buttress its point.

Reliance had in its gas supply and pricing dispute with Anil Ambani Group's Reliance Natural Resources (RNRL) submitted to the Supreme Court that it is a mere contractor and the government alone has the right to fix price as well as users of the gas.

The same stand was taken by the government, which the Supreme Court upheld in its May 7 judgement.

Sources said Reliance itself had contended that it has no ownership over gas and it is bound by government orders and its gas utilisation policy (GUP).

The logic behind the ministry order is that it does not want fertiliser production or generation of electricity during peak summer months to suffer because of a fall in KG-D6 gas output.