If companies like Reliance Industries Ltd (RIL)and Gujarat State Petroleum Corporation (GSPC) are able to start producing gas from their finds in the Krishna-Godavari (KG) basin, the country stands to cut its current energy import bill by 20 per cent. As this newspaper reported on Sunday, the KG basin gas could cut the country’s power deficit by a half, and reduce dependence on imported urea by a similar amount. But there are hurdles in the way. For one, there are two messy court cases that need to be dealt with. One pits RIL against Anil Ambani’s Reliance Natural Resources Limited (RNRL), and the other against the state-owned National Thermal Power Corporation (NTPC). Both cases revolve around the same issue, of RIL having a contractual obligation to supply KG gas to the two companies at a fixed price that is well below today’s market price. Even if the court cases get resolved quickly, or if RIL is allowed to sell its gas after reserving an amount for RNRL/NTPC, the issue remains: How is this gas to be priced and to whom should it be sold?
Free market principles weigh in favour of selling gas to the highest bidder. But if, as happens to be the case, the big two sectors that consume gas today, namely electricity and fertiliser, have their own selling prices controlled by the government, what happens to their costs if gas is freely priced? Even then, it could be argued that the gas should be freely priced and any subsidy that becomes necessary because of downstream price controls, should be paid to the end-users. But should there be any end-users defined in terms of priority, like power plants or petrochemical units, domestic users or industrial units, given that there isn’t enough gas for everyone? Normally, this is what a gas utilisation policy lays down. But no such policy was in place when these fields were bid out. Any such policy prescription thought up now could seem arbitrary as it will always lower the returns for the gas producers. Even so, it is obvious that the earlier a gas utilisation policy is put in place, the better.
How then should priorities be set? For instance, if the ‘Integrated Energy Policy’ says that India needs to step up fresh power capacity to 40,000 Mw a year (or 10 times the current annual addition), it is obvious that power plants must get high priority. Similarly, the policy must keep in mind what can be imported and what can’t. It will be possible to import fertiliser or sponge iron, but not electricity. There are also the needs of a whole range of industrial users who have been promised gas in the past, which set up downstream units that require gas as an input, and which have not been getting the contracted gas. These too will have a prior claim.
When a policy was put in place last June, for a period of five years, the focus was on the gas from RIL’s KG basin — the policy accorded first priority to fertiliser and LPG (both of which can be imported) and then to existing power plants and city gas/transport schemes. In short, the policy ruled out gas for both RNRL and NTPC. When push comes to shove, this will almost certainly be challenged in the courts. What is needed is a transparent and neutral gas allocation policy, so that disputes are minimised.