The Power Ministry wants Reliance Industries to supply natural gas from its KG-D6 fields to state-owned NTPC's Kawas and Gandhar expansion projects without waiting for a court decision on the gas supply dispute between the companies.
RIL had in response to an NTPC tender in 2004 quoted a price of $2.34 per million British thermal units for supply of 12 million standard cubic metres per day to the state-owned firm's Kawas and Gandhar expansion projects.
However, a dispute over commercial terms, including RIL's liability in case of a default in supply, led NTPC to drag the Mukesh Ambani-run firm to the Bombay High Court, where the matter is still pending.
Sources said the Power Ministry, in response to the agenda floated by the Oil Ministry for the February 14 meeting of the Empowered Group of Ministers (EGoM) headed by Finance Minister Pranab Mukherjee, has proposed allocation of 9.7 mmscmd of gas from KG-D6 to the Kawas and Gandhar expansion projects to achieve a 70% plant load factor (or plant capacity utilisation).
In support of its demand, the Power Ministry has quoted the opinion of former Solicitor General Gopal Subramanium on gas allocation to NTPC.
Subramanium, they said, had stated that the EGoM should consider the case of NTPC, which is a public utility, without waiting for the outcome of the court case. The opinion was circulated to the members of the ministerial panel in August, 2010, as per the decision of the last EGoM.
The Power Ministry had at the last meeting of the EGoM on July 28, 2010, proposed that 12 mmscmd of gas should be given to NTPC at the discovered international competitive bidding price of $2.34 per mmBtu without waiting for the outcome of the pending NTPC-RIL suit in the Bombay High Court.
However, this time around, the ministry is not insisting on the $2.34 per mmBtu price and is comfortable with the 2007 government approved price of $4.205 per mmBtu for KG-D6 gas.
Sources said the Power Ministry stated that NTPC has already started work on expansion of its Kawas and Gandhar power projects in Gujarat to meet the milestones necessary for getting gas allocation.
An equipment supply tender for the projects was floated in March, 2011.
Sources said the Power Ministry also wants the EGoM to order RIL to sign an agreement to supply 2.16 mmscmd of gas to NTPC plants other than Kawas and Gandhar.
RIL has not signed pacts for supply of 2.74 mmscmd out of the 4.46 mmscmd of gas allocated to five power projects by the EGoM. Of these, state-owned NTPC is the most-affected, with 2.16 mmscmd of gas supply pending.
While the EGoM had allocated 2.3 mmscmd of KG-D6 gas to NTPC, RIL had in September, 2009, signed a Gas Sale Purchase Agreement (GSPA) with NTPC for supply of just 0.61 mmscmd due to capacity constraints in the pipeline carrying the gas.
The pipeline constraints have been totally removed since June, 2010, but RIL has been delaying the signing of a GSPA despite committing to supply 2.16 mmscmd through side letters to the September, 2009, GSPA, they said.
The Power Ministry, which had taken up the issue with the Oil Ministry several times, now wants this to be included in the agenda for the EGoM meeting slated for February 14.
NTPC, it says, is compelled to buy expensive imported LNG in the absence of gas from RIL and during the winter months, the state-owned firm bought as much as 3.6 mmscmd of imported LNG at prices of up to $20 per mmBtu.
RIL has seen output from its KG-D6 field drop from 61.5 mmscmd in March, 2010, to less than 39 mmcmd, because of which it is not willing to commit supplies to new customers, including NTPC.
The Oil Ministry has suggested key changes in the natural gas allocation policy to the EGoM in view of the sharp drop in output from the KG-D6 fields. It wants gas supplies to power producers that do not sell electricity at regulated tariffs to be stopped.
Also, future gas allocations are to be made only to urea fertiliser plants and fuel allocation to phosphates and potassium fertiliser producers should be stopped, sources said.
The ministry has also proposed to revise the priority attached to city gas distribution (CGD) networks and place them after fertiliser and stranded assets of the power sector and before the new demands of the fertiliser and power sector.
The fall in KG-D6 forced the Oil Ministry to first apply a pro-rata cut in supplies to all consumers in July, 2010, and with a further dip in output, it restricted supplies to only the core fertiliser, LPG and power sectors.