No change in gas supply preference, urea remains top priority
New Delhi: Fearing backlash from farmers, a high-powered ministerial panel on Wednesday rejected a proposal to cut natural gas supplies to urea plants and divert that fuel to power companies.
Fertiliser plants will continue to enjoy top priority in receipt of scarce natural gas after an Empowered Group of Ministers (EGoM) headed by Defence Minister A K Antony turned down the proposal that would have resulted in fall in urea production during peak kharif season.
"Today's decision is that the requirement of fertiliser for the agriculture sector will be fully protected. While doing that possibilities are being explored whether any additional gas can be made available to power sector," Oil Minister M Veerappa Moily said after the EGoM meeting.
The ministerial panel, he said, would meet again on Monday to discuss methodology of making available gas from other sources to power sector in the short term and medium term.
"Agriculture season is very good and we need to protect their requirement. At the same time, power should also get gas," he said.
The EGoM meeting was convened to consider abolishing the priority ranking in natural gas allocation so that the fuel currently consumed by urea plants can also be diverted to fuel-starved power plants.
Currently, fertiliser plants consume all of the 14 million standard cubic metres per day of gas produced from Reliance Industries' eastern offshore KG-D6 fields. No gas flows to 25 power plants that had signed up for 29.74 mmscmd of KG-D6 gas.
If the proposal for giving power sector equal footing with fertiliser would have been accepted, it would have meant that gas supply to urea plants going 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.
The diversion would have meant that gas supplies to power sector going up by 10.79 mmscmd, leading to an extra output of about 17,000 million electricity units per annum and saving in production cost of Rs 11,700 crore per annum.
Stating that gas requirement of power plants should also be ensured, Moily indicated that untied fuel from fields of state-owned Oil and Natural Gas Corp (ONGC) can be committed to the sector.
"We are making a strategy for making available gas (to the power sector). That strategy will be presented to EGoM on Monday," he said.
EGoM meeting was called after power sector pressed for abolishing 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.
The current priority ranking meant when output from RIL's KG-D6 fields started falling in 2011, supplies to refineries was cut first, then steel and city gas sectors.
From November 2011, supplies to 25 power plants, which had signed for 29.74 mmscmd of KG-D6 gas, were pro-rata cut and this year completely stopped as output kept falling.
From June 1, supplies to LPG plants, which had contracted 2.59 mmscmd of KG-D6 gas, too has stopped as current production of just over 14 mmscmd was sufficient to meet the full requirement of fertiliser sector only.
The EGoM was presented with three options - maintaining status quo; giving 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 was 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. This would levy an additional subsidy burden of about Rs 5,591 crore per annum.
On the other hand, supply to the power sector will increase by 10.07 mmscmd, resulting in additional production of about 16,000 million units of electricity per annum.
Sources said it was reasoned that the production cost of power projects forced to use re-gasified LNG would go down by Rs 10,900 crore per annum.
The 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 sector would go up by 10.79 mmscmd leading to an extra output of about 17,000 million electricity units per annum, saving in production cost of Rs 11,700 crore per annum.