Latest gas allocation norms smack of quota raj: Experts

The proposed gas allocation policy, which will override the government's commitment to allow sale and purchase of gas on the basis of market diktats, has cast a shadow over the country's emerging market for the commodity.

In the New Exploration and Licensing Policy (NELP) "" under which oil and gas blocks have been auctioned to companies in India and around the world "" the government has committed that the producer will have the "freedom to market the gas at market-related prices".

The government's commitment to free market was reiterated when the Petroleum and Natural Gas Regulatory Board (PNGRB) was formed to ensure a "competitive" gas market.

"The gas allocation policy will distort market forces," said PNGRB Chairman L Mansingh. The board has not been consulted on the policy.

"The gas utilisation policy is a step back from the commitments under the Nelp contracts," said a senior executive of a gas company.

The draft gas utilisation policy of the petroleum ministry says fertiliser plants will have the first right on the gas from the country's fields, followed by petrochemical units and existing gas-based power plants.

"Once the gas utilisation policy comes, gas producers will be forced to sell gas first to fertiliser companies even if they offer a lesser price than say a tile manufacturing company," said another executive with a gas company.

A top official in the Department of Fertilisers said gas priced above $3.5 per million British thermal unit (mBtu) would make fertiliser imports cheaper. That means the fertiliser companies will not be able to pay the approved base price of $4.20 per mBtu for the gas produced from Reliance Industries' block in the Krishna-Godavari basin.

The policy says the allocations are necessary as the government wants to make sure that all "components" of gas are utilised. This can be ensured by allocation to fertiliser plants, petrochemical units and LPG fractionators, where gas is used as a feedstock rather than fuel, the draft policy says.

However, RIL's gas, which will double the gas availability in the country, is a lean gas, not a rich gas. This reduces its use as feedstock in petrochemical plants and for LPG extraction.

Earlier attempts at gas allocation have led to misguided investments based on flawed projections. Earlier, a Gas Linkage Committee (GLC) used to allocate gas to various industries on the basis of the availability projections.

The GLC allocated 120 million cubic metres per day (mcmd) of gas to consumers. Today, even a couple of years after the GLC was disbanded, the gas available is only around 80 mcmd.

"Now, the government is trying to compensate for over allocating gas to user industries," said an official.

The government attempted did away with gas allocations in 2006.