Govt to enforce rights to K-G basin pact

The govt is considering exercising its rights under gas production-sharing contracts.

Faced with a 40 per cent shortfall in its 2007 power generation targets, the government may soon enforce its rights under the gas production-sharing contracts for supply of gas from Reliance Industries' Krishna-Godavari fields.

Aimed at ensuring uninterrupted and adequate supply of feedstock for the new gas-based power projects (of about 10,000 Mw capacity) to be set up in the next three years, these measures are being taken to prevent Reliance from diverting its gas supplies to other customers during the contract period.

This will be achieved by capping the gas seller's contractual liabilities after a discussion with gas suppliers and the lenders to the power projects.

The second proposal is to strengthen the sellers' covenants regarding maintenance of sufficient reserves during the contract period. This will ensure that the gas reserves based on which the supply contracts have been concluded are maintained and preserved to ensure uninterrupted supply.

Another proposal is to have a definitive contract period (that matches the life of the power project for which supplies have been committed) and a fixed annual contracted quantity, instead of the current variable supply provisions.

Inadequate and irregular supply of gas (mainly because of the rising demand from other sectors) has created a major problem for almost all the existing and proposed gas-based power projects in the country. Over 10 per cent of the total installed power generation capacity of 1,28,400 Mw uses gas as the primary feedstock.

Another reason for the government to consider these measures is its realisation that it will fall short by over 40 per cent of its target to create 41,000-Mw additional power capacity in the Tenth Five-Year Plan,(ending March 2007). A major reason cited for this failure is the absence of assured gas supplies for power projects.

In order to make good the shortfall it suffered in the Tenth Plan, the government now plans to complete gas-based power projects of about 10,000 Mw in the next three years (gas-based projects have the least gestation period and hence are the preferred option in such situations) Almost all the new capacity will be based on gas from the Krishna Godavari basin.

The government also believes that gas supply terms, acceptable to lenders of power projects, is the only critical issue that remains in the way of work commencing at NTPC's power projects in Gujarat (of 2600 Mw capacity) and Reliance-Anil Dhirubhai Ambani Group's projects in Uttar Pradesh and Maharashtra (of 7,000 Mw).

Government sources added the matter was discussed on February 1 at a meeting of Cabinet Secretary B K Chaturvedi with the power and petroleum secretaries.

The proposed 10,000 MW addition implies a more than 50 per cent addition over the capacity added during the last four years of the 10th Plan period.

The process would incur an investment of over Rs 50,000 crore in generation, transmission and gas pipelines. Domestic equipment suppliers like Bhel are expected to get orders of about Rs 30,000 crore from these projects. The projects will use domestic fuel, resulting in annual forex savings of about Rs 10,000 crore.