Union government has received a notice from Supreme Court [SC] on a petition filed by Independent Gas-based Power Producers Association [IGPPA] seeking priority in allocation of gas produced from the Reliance Industries Limited [RIL] operated Krishna – Godavari [K-G] basin. IGPPA has contended that the gas allocated from KG basin was not allotted to them on priority basis but was given to fertilizer units. Besides, they wanted a direction to the Central government to frame a policy for country’s energy security.
Federation of Farmers Associations [FFA] has also filed a public interest litigation [PIL] demanding more allocation to power sector so as ensure “adequate” electricity supply to farmers. Major companies in steel sector viz., Essar Steel, Welspun Maxsteel and others have also filed petitions in SC seeking alterations in priorities for gas allocation to ensure that steel producers get a bigger share of gas coming from KG-D6 gas fields.
Earlier, in its order delivered in January, 2015, the Andhra Pradesh High Court [APHC] had refused to interfere with the government policy decision on the issue, saying the Centre has powers to fix priorities as to which sector would get natural gas produced from KG basin. The petition now filed by IGPPA and others seeks to challenge the order of APHC.
The unfolding scenario is bizarre. It is a dangerous trend whereby the companies, industry associations and even farmers bodies are increasingly prone to taking matters to courts [even up to highest level in judiciary, as in present case] in areas which lie strictly within executive domain. Is it their case that instead of government, courts should start formulating and implementing economic policies?
To a large extent, actions of the government in the past indulging in policy flip flops and taking decisions in an ad hoc, arbitrary and non-transparent manner have largely contributed to this sordid state of affairs. The instant case provides a classic example of how priorities for gas allocation based on sound rationale have been unjustifiably fiddled based on short-term expediencies.
In 70s, when gas finds were beginning to become available, Lovraj Kumar Committee (1976) observed “national economy will derive the maximum economic advantage if it is to be used in production of fertilizers” This was reiterated by Satish Chandran Committee (1979) which held “opportunity cost of lean gas/methane (after removal of higher fractions) would be maximum when it is used in production of nitrogenous fertilizers”.
Gas has ‘chemical’ value (hydrogen & carbon) which is optimally utilized in production of fertilizer. Carbon-dioxide generated in the process is fully converted in to urea. Higher fractions viz., C-2, C-3, C-4 are fruitfully used in petro-chemical sector. In power, gas is burnt even as chemical value goes waste. All carbon present in gas is converted in to carbon dioxide and emitted in to atmosphere. It adds to greenhouse gases and therefore, detrimental to the environment. Accordingly, fertilizers were accorded top priority and entire available gas was committed to it.
Addition to urea capacity and infrastructure for movement of gas including laying of H-B-J pipeline from Hazira [location in Gujarat where gas produced in offshore area (in South Bassein region) lands] – Bijapur [Madhya Pradesh] – Jagdishpur [Uttar Pradesh] was planned on this basis. 2 world-scale ammonia/urea plants [1350 tons per day (tpd) ammonia and 2200 (tpd) urea] at Hazira and 6 such plants along H-B-J pipeline were set up synchronizing with commissioning of pipeline. 2 more plants of same size were put up at Thal [Maharashtra] using gas from Bombay High.
In later half of 80s, when there were indications of gas surplus, a Committee of Secretaries (CoS) recommended its use in power plants as well [some power plants on gas were set up on this basis] even though ‘first priority’ for fertilizer continued. In 90s, despite anticipated surplus not fructifying and resultant gas shortage, powers that be went ahead allocating more gas to power while denying existing fertilizer plants their full requirements not to talk of any gas for new plants or brown-field projects [expansion at existing site].
In 2000s, a major discovery by RIL in KG-D6 field [2002] held prospects for a substantial improvement in gas supply. In 2006, RIL promised to supply 80 million standard cubic metre per day [mmscmd] from the field. Buoyed by this, government permitted indiscriminate expansion of gas-based power capacity [replaying the act of 90s on a much larger scale]. But, in major volte face, production from KG-D6 after reaching 60 mmscmd in 2010, plummeted to 26 mmscmd in 2012-13.
Sensing that this would result in reduced availability for power sector [if extant priorities for gas allocation were to continue], an empowered Group of Ministers (EGoM) in a meeting held on July 17, 2013, considered a proposal by Ministry of Petroleum & Natural Gas (MPNG) to re-prioritize allocation of domestic gas from RIL’s KG-D6 fields ‘to treat power on par with fertilizers’. MPNG had proposed diversion of 10 mmscmd from fertilizer to power. However, a decision was deferred pending further examination.
Meanwhile, production from KG-D6 continued its downward trajectory to around 13 mmscmd in 2014-15 and further to a low of 10 mmscmd currently. But, Modi – government has allotted entire production to fertilizers. With this and 16 mmscmd from ONGC/OIL, fertilizer industry gets a total of 26 mmscmd against requirement of 47 mmscmd. This results in a huge deficit of 21 mmscmd forcing manufacturers to either import LNG [liquefied natural gas] or use alternate feed stock such as naphtha at higher rates.
Yet, gas based power producers have kept up pressure on Modi – dispensation to change priorities. When, that did not work [given this prime minister’s unflinching commitment to a policy driven state], they have now moved the court. It is perplexing to see a farmers association supporting this demand [why should they insist that power comes to them only from gas based plants?]. Are they not worried about supply of fertilizers which will suffer if gas is taken away from this industry for giving to power?
If, 10 mmscmd is taken away [as per MPNG 2013 plan], its substitution by imported LNG [at current price, it costs US$5 per mBtu more than domestic gas] would lead to an extra outgo of Rs 4500 crores per annum. Add to this Rs 9500 crores extra cost due to already un-met demand of 21 mmscmd (4500×2.1), the total additional burden on fertilizer industry will be about Rs 14,000 crores annually. In case, LNG price starts moving northward, the impact will be proportionately higher.
In view of above, Modi – government should emphatically state its position reiterating its extant priority for gas allocation and the rationale behind it. It should also categorically state that economic policy formulation including its policy for allotment of gas – a natural resource that belongs to people of India – is strictly its prerogative. Accordingly, the apex court should summarily reject the petitions of IGPPA et al and save its precious time for other important matters.
As regards the concerns of power sector due to reduced supply of domestic gas, the government has already put in place support mechanisms for the short-term even though in the long-term, there is no escape from increasing supply of domestic gas to the desired level. For details, pl read:-
Gas-based power plants ‘woes’ – look for permanent solutions