The meeting of the Empowered Group of Ministers (EGoM), headed by Defence Minister A. K. Antony, has been convened for July 17. It will take a decision on the abolition of priority ranking in allocation of natural gas and the diversion of gas consumed by urea units to power plants that are lying idle for want of gas.

Fertiliser first

The EGoM meeting has been convened at the request of the Petroleum and Natural Gas Ministry which has come out with a proposal to abolish the priority ranking according to which natural gas is first given to urea manufacturing fertiliser plants, then to LPG units, followed by power plants, city gas, steel and refineries.

According to the current priority ranking for allocation of gas, fall in supplies from the KG D6 of Reliance Industries Limited (RIL) meant that supplies to refineries faced the first cut followed by steel and city gas sectors. From November 2011, supplies to 25 power plants, which had signed for 29.74 million standard cubic meters per day (mmscmd) of KG-D6, were pro-rata cut, and this year completely stopped as KG-D6 plummeted to one-fourth of volumes touched in March, 2010.

Barely sufficient

The current KG-D6 production of less than 15 mmscmd is just sufficient to meet the full requirement of fertiliser sector and some of LPG plants, leaving no gas for power plants.

Two options

The Ministry has proposed two options—equal priority to all core sectors of fertilisers, LPG, power and city gas distribution or according fertiliser and power equal priority.

The gas supplies would be redistributed among the sector users pro-rated based on the signed gas supply agreements.

“If available gas is to be redistributed among the four core sectors, it would reduce supplies to fertiliser plants by 9.44 mmscmd and lead to an extra urea import of 4.73 million tonnes that would levy an additional subsidy burden of about Rs. 5,591 crore per annum. On the other hand, supply to power sector will increase by 10.07 mmscmd, resulting in additional production of about 16,000 million units of electricity per annum,” the Petroleum Ministry note has stated.

The Petroleum Ministry has stated that the production cost of power projects forced to use re-gasified LNG would go down by Rs. 10,900 crore per annum.

The Ministry's second option giving equal priority to the power sector as is available to the fertiliser sector, would mean gas supply to urea plants would go down by 9.07 mmscmd forcing an import of 4.54 million tonnes of urea at an additional subsidy burden of Rs. 5,372 crore per annum.

Gas to power would go up by 10.79 mmscmd, leading to an extra output of about 17,000 million electricity units per annum, saving production cost of Rs. 11,700 crore per annum.

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