Andhra, oil firms bullish on gas project

While the issue of pricing of the gas has become a major source of uncertainty in determining the demand and in developing the related infrastructure such as trunkline and supply network within the state, both the oil companies and the state government appear to be at least sure of the business potential of city gas and are planning to go ahead in this area.

Reliance Industries has already announced its plans to implement the city gas network in the state, as part of its national level plan, considering the upfront cost difference between the supply of LPG and natural gas for domestic and automotive usage.

The Andhra Pradesh Gas Grid Corporation, promoted by state-owned Infrastructure Corporation of Andhra Pradesh (Incap), is also planning on similar lines.

So far, Reliance Industries has proposed to implement the city gas project in 26 towns whereas Incap, which has proposed to execute the gas grid project in association with Gujarat State Petroleum Corporation (GSPC), is planning the same in over 30 towns and cities in the state.

"A mere 2 mmscmd (million metric standard cubic metre per day) of gas through the city gas supply business can generate over Rs 1,500 crore revenue. The business potential in city gas is very huge but it will be built over a period of time," L V Subramanyam, vice-chairman and managing director of Incap, told Business Standard. British Gas officials had also shown interest in the city gas business.

According to him, it is possible to put infrastructure in place within a very short period once the exact commitment on quantity of supply of gas as well as the demand for each local sector is known.

"The pricing of gas is a very ticklish issue and it is not going to be resolved soon," a senior government official dealing with the Reliance's proposed MoU with the Andhra Pradesh government observed. Though it suits the government to enter into an MoU with any oil company on a specific commitment on the quantity of gas to be made available for consumption within the state, such a privilege is nowhere in sight.

"We may have to enter into MoUs with the companies, including Reliance, ONGC and GSPC, separately before the pricing is determined, but in a very cautious manner," the official said.

The government's foremost concern with regard to gas pricing issue is on the energy front, where it has to foot the bill for any escalation in fuel prices as far as the existing power purchase agreements (PPAs) are concerned.

While the state government has urged the oil companies to accord the most favoured customer status to Andhra by offering the gas at the lowest possible price, the companies have not yet made any commitment citing the Centre's stand on differential treatment in pricing with regard to Anil Ambani's proposed gas power project.

According to officials, Reliance Industries has come forward to commit a portion of its gas produced in the K-G Basin to the state while the Incap is in the process of getting a similar commitment from the GSPC.