Hyderabad|India|August'2009: While expressing satisfaction that the entire present requirement of Andhra Pradesh is being met from the KG basin gas, the Chief Minister said that the priority of the State Government is to see that piped gas reaches every kitchen in Hyderabad and other Municipalities in the first Phase in the State. A meeting of the concerned companies will be held at the earliest to see that an MoU is signed in this regard. The details will be worked out about the cost of infrastructure to be created for piped gas supply in the city and other Municipalities.

The Chief Minister expressed hope that once the infrastructure is created and pipelines laid for gas in the city and CNG stations established, vehicles and small and medium industries can also be supplied the gas at a very reasonable price. This will not only reduce the prices of gas by 40% and also pollution in the city. The Chief Minister also saw a presentation on Indian gas market--current consumption and supply. The RIL is presently supplying 10 million metric standard cubic metre per day (mmscmd) for projects in Andhra Pradesh which is the present requirement.

The Chief Minister also reiterated that the State will fight for its reasonable share of gas to be produced in future and also for its share of royalties. He said the he will make sure that the State also will gets the remaining 2.21 mmscmd duly allotted to it.

The Chief Minister was informed that as per Article 297 of the Constitution of India, all lands, minerals and other things of value underlying the ocean within the territorial waters or the continental shelf of India vest in the Union Government. In view of this, the natural gas occurring in K-G Basin in the Bay of Bengal, off the coast of Andhra Pradesh belongs to Government of India. This is the case with Bombay High, North Basin and South Basin gas as well which is presently meeting 70% of India’s gas requirement through HBJ pipeline, now extended up to New Delhi.

The Government of India, with a view to utilizing the said resource, has come up with New Exploration Licensing Policy (NELP), whereby the exploration and exploitation of the natural gas have been thrown open to the private corporate sector also. As part of this, through an International Competitive Bidding process, Reliance Industries Limited (RIL), ONGC, Cairns Energy and Gujarat State Petrochemical Corporation were awarded various blocks in K-G Basin. Of the above four contractors, only RIL has recently commercialized the natural gas. The RIL was initially contending that they have the right to sell the gas to any customer on the market discovered price.

The natural gas in KG basin is capable of substituting Naphtha for the production of Urea; it is capable of power generation; it is capable of substituting petrol and diesel as CNG; it is capable of substituting LPG for domestic gas and it is also capable of substituting furnace oil for industrial use. Thus, it has a wide range of applications and only an impartial prioritization of gas allocation on some rational basis by an independent agency like the Government of India can serve long term national interest of the people of the Country.

In view of the above, the Government of India have constituted Empowered Group of Ministers (EGOM) for prioritization of gas allocation and fixing the price of natural gas under the Chairmanship of the then Union Minister for External Affairs, Pranab Mukherjee. The other Members are the Union Ministers for Petroleum, Power, Fertilisers, Finance, Law, Justice & Company Affairs and Deputy Chairman of the Planning Commission of India.

The EGoM on natural gas at their meeting held on 28th May 08 decided that the first supplies of natural gas from the KG Basin should go to meeting the requirements of natural gas of existing stranded power and fertilizer projects and balance, if any, should be allocated to City gas distribution and new power and fertilizer projects. The EGoM on Natural gas, at their meeting held on 28th May 2008 made the following prioritization of gas allocation from RIL’s D6 Block in KG Basin out of their proposed first phase production of 40 mmscmd of gas: 14 mmscmd to existing fertilizer units, 18 mmscmd to existing power Projects, 3 mmscmd to LPG Extraction Plants and 5 mmscmd to CGD projects.

The EGOM further decided that the price of the natural gas shall be $ 4.3 per million BTU for all classes of consumers. Thus, it is the Government of India that has decided both the prioritization of gas supply and the price, reducing the role of RIL only for production and supply of gas. As a result, the RIL does not have any say either in allocation or in price fixation. Interestingly, no portion of the gas that is presently being produced is utilized by RIL.

The RIL has started supplying gas from the first week of April, 2009 beginning with 5 mmscmd. As on 1st August, 2009, their production has reached 31mmscmd. Out of this, the RIL is supplying 10 mmscmd of gas to projects in Andhra Pradesh, 5 mmscmd of gas to projects in Maharashtra, 7 mmscmd for projects on the HBJ pipeline and 8 mmscmd for projects in Gujarat. Incidentally, the entire requirement in respect of all the existing gas based projects in the State is fully met by supplies from RIL. It is estimated that RIL will reach the targeted production level of 40 mmscmd by 30th September, 2009. The RIL will eventually produce 80 mmscmd by September, 2010. No body is quite sure as to when other contractors like ONGC, CAIRNS and GSPC will start production from the wells allocated to them. It may take atleast four years from now for commercialization.

In Andhra Pradesh, gas-based power projects for a capacity of 2799 MW were promoted on the assurance of gas supply given by ONGC/GAIL during the period 1994-2003. Nagarjuna Fertilizers & Chemicals Limited has also come up on the basis of similar gas assurance. The total requirement of gas in the State in respect of the existing projects is 16 mmscmd, as against which, GAIL was supplying only 6 mmscmd, leaving a gap of 10 mmscmd. As a result, the power projects were operating at 30% PLF only and Nagarjuna was operating at only 60% capacity utilization. The EGOM allotted 7.79 mmscmd of gas from RIL’s first phase production as against a requirement of 10 mmscmd. As there is a provision for utilizing the unutilized portion of the gas allocated, the RIL is supplying the entire requirement of 10 mmscmd in the State in respect of our existing power and fertilizer projects. Because of this, the power situation in the State has vastly improved, as all the gas-based power projects are operating at their full capacity for the first time since their implementation.

The APGENCO has already initiated steps for promotion of 2100 MW of gas-based power project in Karimnagar district. This approximately requires 8.5 mmscmd of gas, for which the RIL has already issued a firm gas supply letter in 2007. In view of the changed circumstances, this however needs the approval of EGoM. The APGENCO is following up this matter. The EGOM will soon start allocation of gas for new projects after ensuring that the requirements of all the existing gas based projects are fully met.

The Government of Andhra Pradesh is committed to utilizing the gas available in the K-G Basin for promotion of industries and for City Gas Distribution in the State which includes CNG and piped gas as substitutes for LPG. Now that there is certainty of availability of gas from KG basin in the long run on a sustainable basis, the Krishna Godavari Gas Network Limited and the Bhagyanagar Gas Ltd have been directed by the Chief Minister for taking up CGD network creation in the State. The State Government is also proposing to approach the Petroleum Regulatory Board to grant the permission for CGD to KGGNL and Bhagyanagar on nomination basis. As regards participation by the State Government in gas exploration, it has been decided to go by the expert advice of DG, Hydrocarbons of Government of India.

Minister for Major Industries, K Lakshminarayana, Advisor to Government to AP, D.V.Somayajulu, Spl.Chief Secretary, Energy, A.K.Goel, Prl.Secretary, Industries, Sam Bob, MD, APTRANSCO Suthirtha Bhattacharya, Secretary, Infrastructure and Investments, Manmohan Singh, MD, APGENCO K.Vijayanand, MD, APIIC, B.P.Acharya and other officials attended the meeting.