Investments worth over Rs 1 lakh crore in gas sector remain stranded: ASSOCHAM

Apex industry body ASSOCHAM has urged the Centre to implement universal gas pooling based allocation and pricing policy from April 1, 2015 and appoint a pool operator responsible for importing additional gas required based on a transparent tendering processing.

"Limited domestic gas availability together with bottlenecks in import facilities and high cost of imported gas have resulted in huge stranded investments worth over Rs 1 lakh crore together with differential and constantly changing allocation to various customer segments," said The Associated Chambers of Commerce and Industry of India (ASSOCHAM) in a communication addressed to union finance minister, Mr Arun Jaitley.

"Despite availability of large gas import capacity, India continues to face gas shortages because of high cost of imported gas through spot and short-term markets and limited access to import capacity," said Mr D.S. Rawat, secretary general of ASSOCHAM.

"Frequently changing gas allocation policy resulted in large investments made on the basis of domestic gas allocation becoming infructuous and stranded thereby adversely affecting private sector enterprises and leading to poor interest in investment in gas sector industries dependent upon gas supply," said Mr Rawat.

"Recent reduction in spot and short term import gas prices offers an opportunity to the Government to eliminate the shortage faced in the gas sector and also introduce transparency in gas allocation and pricing through universal gas pooling," he added.

In its letter to the oil minister, ASSOCHAM has suggested the government to pool domestic gas, long term imported re-gasified liquefied natural gas (RLNG) and short-term/spot gas imported using available import capacity to create a total supply base of 164 million metric standard cubic meter per day (MMSCMD) to supply gas to all the gas based installed facilities.

"This is considering the decline in crude prices having resulted in fall in spot/short-term gas price from $15 per million British thermal units (MMBtu)," noted the letter.

The pool price envisaged is as follows:

2015-16 2016-17Source Quantity Price Quantity Price MMSCMD US$/mmbtu MMSCMD US$/mmbtuDomestic Gas 71 4.70 78 4.70 Long Term Gas 27 14.30 27 14.30 Short Term / Spot 45 8.00 60 8.00 Total 143 7.55 165 7.47

The aforesaid pooling arrangement would result in following advantages:

1. Gas supply to all gas based facilities wherein investments have been made pursuant to gas allocation by Gas Linkage Committee (GLC) and Empowered Group of Ministers (EGoM) and also facilities without allocation and stranded due to gas non availability/high gas cost.

2. Gas availability at affordable price for all sectors and Elimination of stranded investments in sectors like fertiliser, power, steel, petrochemical and others.

3. No additional subsidy: Average gas price in Fertiliser sector currently at more than US$ 7.50 per mmbtu and under pooling the price shall remain same so as to have no additional subsidy burden.

4. The cost of power using the above pool price shall work out to be lower than Rs 5.50 per kwh without any subsidy requirement. The average price of gas on sector basis for the power sector shall remain unchanged.

5. All allocation related issues and discriminative supply issues shall be settled in one go.

6. Additional revenue to government from custom, excise, VAT etc due to start up of the stranded gas based facilities in Steel, petrochemicals, refinery and power is envisaged at more than Rs 8000 crore.

7. Resolution of issues in gas sector shall give a huge boost to the Government's ambitious 'Make in India' campaign.

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