Oil ministry decides to stay out of RIL-NTPC gas supply issue

Oil ministry has decided not to intervene in the issue of supply of gas from Reliance Industries Ltd's (RIL) Krishna Godavari block to National Thermal Power Corp Ltd's (NTPC) two power plants in Gujarat, a senior ministry official said on Tuesday.

The official said power plants in Andhra Pradesh would get priority in government's share of gas from the RIL block.

Reliance had emerged as the lowest bidder for supply of gas to NTPC's Kawas and Gandhar power plants in Gujarat in 2004. Reliance has now expressed inability to supply gas from 2007, when the two power plants are slated to expand capacity.

Also, since gas prices have increased in line with the surge in global crude oil prices, "NTPC deal is not as attractive for Reliance, which is planning to renegotiate the prices," the official said.

"We have received a request from the power ministry to intervene but we are unable to do so," an oil ministry official. NTPC is expanding the capacity of its two gas-based power projects to 1300 megawatts from 650 MW currently.

The official said "initially NTPC considered it a good deal but is not being able to enforce it now with RIL refusing to comply with the original agreement." Reliance had quoted a price of $2.97 per million British thermal unit of gas.

However, the two parties are yet to formally sign a deal for supply of gas. Reliance has cited new conditions to sign the gas sales and purchase agreement with NTPC.

It is now seeking inclusion of 'marketing and risk management charges' as part of the delivered price to capture the perceived risks, including increase in rates following rise in input costs and also due to regulatory changes.

The official said the oil ministry has recently undertaken a review and Reliance informed that gas supplies would be available only from June 2008.

The government gets a certain share in the gas and oil finds in the country after the field operator recovers the entire investment made to develop the field and starts earning profit.

GAIL (India) Ltd. is expected to be the government nominee for buying the government share of gas in the Reliance find.

The official also said the production-sharing contract signed between the government and Reliance has a price band for the gas. "If the price band envisaged in the production sharing contract is too low, then the government's share in Reliance' find will take time to come," the official said.

Also, Reliance has not approached the ministry with any price formulation after the discovery. Asked if the government is planning to give its share of gas in Reliance's find to power plants in Andhra Pradesh, the official said "gas linkages (quota) has been allocated to four running independent power plants in the state and four plants are in various stages of completion." "Our priority is to give our share of gas to these power plants," the official said.

Shares of Reliance Industries traded at Rs 756.50 on the National Stock Exchange, up 0.53% over Monday. Shares of NTPC traded at Rs 102, down 1.40%.