CAG raps govt on gas infra

Says inadequacies led to loss of nearly Rs 12,000 cr in fertiliser subsidy over recent years; queries why RIL marketing margin fixed in dollars

The office of the Union comptroller and auditor general (CAG) has questioned why Reliance Industries (RIL) was allowed to charge a marketing margin on natural gas in dollar terms when that allowed to state-owned GAIL was approved in rupee terms.

The auditor recommended the petroleum ministry ensure the latter methodology be adopted for supply of natural gas from domestic sources for use in sectors where the government bears the subsidy burden.

Pulling up the government for failing to create infrastructure for domestic gas production and supply, the CAG said India lost subsidy savings of Rs 11,800 crore between 2010 and 2013 on this account.

The report, detailing the impact of shortage in domestic gas supply on the power sector, was presented in Parliament on Tuesday.

Performance Audit Report on Supply and Infrastructure Development for Natural Gas was tabled in Parliament on Tuesday. “As the department of fertiliser (DoF) did not reimburse the marketing margin as demanded by the contractor (RIL) from the fertiliser units, subsidy claims on account of a marketing margin on KG-D6 gas were pending since 2009-10.  If DoF decides to reimburse the said margin, the additional subsidy burden would be Rs 201.4 crore from May 2009 to March 2014,” said the report.

The contractor was charging a marketing margin based on the energy equivalent of gas supplied, of $0.135 per million British thermal units. The margin is charged over and above the government-approved natural gas sale price. CAG said the petroleum ministry had in March 2009 stated the government had not fixed or approved the amount of margin till date for sale of natural gas by any company. Thereafter, the ministry in May 2010 fixed one of Rs 200 per million standard cubic metres (mscm) only for GAIL.

Charging a marketing margin for KG-D6 gas in dollars instead of rupees for a commodity produced, marketed and consumed domestically “is incongruous with the Indian market,” CAG said, adding the exchange fluctuations meant the margin of Rs 244.31 per mscm in 2010-11 increased to Rs 325.51 per mscm in 2013-14.

CAG said non-availability of long-term gas supply and inadequate pipeline connectivity were the main constraints in increasing of urea production capacity. Production was only 44.6 million tonnes against the requirement of 60.4 mt in 2011-12 and 2012-13. The shortfall of 15.9 mt was imported. “Thus, due to non-expansion of urea production capacity, government lost an opportunity of saving subsidy of Rs 4,202 crore during the period,” the report said.

The government also lost an opportunity to reduce urea subsidy by Rs 7,674 crore between 2010-11 and 2012-13, as units continued production by using costlier feedstock, due to the absence of adequate pipeline connectivity, and non-availability of regasified liquefied natural gas led to delay in conversion of naphtha and fuel oil-based plants to natural gas-based urea units.

CAG also said as there was no mechanism to prevent or detect mis-utilisation of gas either with the ministry or GAIL, there was underrecovery in the gas pool account to the extent of Rs 630.6 crore. Natural gas is priced at the market rate for manufacturing of products other than fertiliser and electricity production for supply to licensed distribution companies.

The auditor has recommended the petroleum ministry set up an inter-ministerial committee, in coordination with its power and fertiliser counterparts. It should suggest a time-bound plan for synchronising implementation of gas pipeline projects and revival of fertiliser units, so that the benefit of gas as feedstock is derived, beside reducing import of urea. The committee would also suggest measures to create the required infrastructure to provide gas for the power sector at an affordable price.