No gas for new industries in Andhra Pradesh: Aiyer

Delivering a body blow to the new Congress government's efforts to attract industrial investment into the state, the Union oil and natural gas ministry has expressed its inability to give gas allocation to the new industries in Andhra Pradesh in the near future.

The move by the Union oil and natural gas ministry is also expected to weaken the state government's efforts at re-negotiating existing power purchase agreements with independent power producers in the state. Efforts to contact Rachael Chatterjee, chairperson of APTransco, and D K Panwar, principal secretary, Energy, Andhra Pradesh government, failed.

While replying to chief minister Y S Rajasekhara Reddy's request for allocation of gas to the proposed plant of UAE-based $300 million RAK Ceramics in East Godavari district, Union petroleum minister Mani Shankar Aiyer in a letter said that additional gas will not be available from the KG Basin until 2007. Gas is expected to flow for the requirements of the energy-starved state only when the Reliance Group starts production from its allotted blocks in the KG Basin.

Finding fault with the previous NDA government that sanctioned gas linkages to various projects based on the projected availability of 17.7 million cubic meters per day (MMCMD) of gas in KG Basin, when the actual availability was only 7.2 MMCMD.

"This was done probably to please its ally in the state," was the observation made by him on the immediate fate of the linkages sanctioned to these projects. According to the minister, the situation would not be any different in the next two years.

Interestingly, Aiyer has advised that RAK Ceramics, which needs gas for its operations from 2005 onwards, should relocate its plant elsewhere.

The petroleum ministry's response on further allocation of gas is expected to dampen the government's plans on other fronts too. For example, the state government was trying to get the gas to the gas-based power projects with which the previous government had signed power purchase agreements (PPAs).

The new government has already been pursuing these independent power producers (IPPs) to postpone their operational plans till 2007, as these companies are entitled to generate power with alternate fuel like naphtha, which costs the state very dearly.

The four IPPs "" Vemagiri Power Generation Limited (370), Gautami Power Limited (464 mw), GVK Extension Project (230 mw) and Konaseema EPS Oakwell Power Limited (445 mw) "" have a total firm allocation of 6.4 MMSCMD.

It may be recalled that the promoters of Vemagiri had agreed to defer the scheduled date of completion of the project and suitably modify the PPA. In case of non-availability of gas, the government wants these projects to wait until the Reliance gas is made available from 2007, as announced by the group.