RIL refuses OilMin order to swap KG-D6 gas with Andhra firm

Reliance Industries has refused to follow Oil Ministry order to swap its KG-D6 gas with a Andhra city gas firm saying "trading" in scarce natural resource was not permissible under Gas Utilization Policy.

The ministry had ordered that a part of 2.594 million standard cubic meters per day of KG-D6 gas allocated to state-owned GAIL India Ltd's be diverted to Hyderabad-based Bhagaynagar Gas Ltd (BGL) under a so-called gas swapping guidelines.

GAIL was to make good the shortfall through imports of liquefied natural gas (LNG) which costs four-times the KG-D6 gas price of $4.2 per million British thermal unit. GAIL was to charge BGL the actual price of imported LNG.

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RIL in a letter to the ministry said if such an "untenable" policy was allowed it would encourage KG-D6 allottees to sell the cheap gas at higher rates during times like plant shutdowns when they don't need the fuel.

"KG-D6 gas has been allocated by the government under gas use policy approved by EGoM specifying, sector priority, plant location and use, whereas to implement the said guidelines, RIL is expected to accept change in sector, location and use from currently allocated end use of KG-D6 gas, and not at the instance of the Government but at the behest of the customer apparently without any reference to or intervention of the government," RIL wrote.

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The ministry had on September 21 written to RIL saying a gas swap "parties do not have to approach government for approval."

"The swapping guidelines are untenable and cannot be reconciled with existing Gas Use Policy," RIL wrote.

Based on EGoM decisions, customer wise allocations with specific end use and that too at a specified location was made. RIL's Gas Sales and Purchase Agreements (GSPAs) with users reflect the end use of gas and location of the plant.

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"If implemented, these (swapping) guidelines would render any meaningful monitoring of the end use impossible either by the government or by RIL and result in... Trading of gas allocated," RIL wrote.

As an example, RIL said for a customer used both LNG and KG-D6 gas, the price differential between domestic gas and LNG was so huge that it need not use the gas but simply give it to another user who uses imported LNG.

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"Even those allottes who are required to run continuous operating units would divert KG-D6 gas during their low/nil requirement period such as shutdown or maintenance," RIL said.

"If that is the result of the swapping guidelines, in our submission there is no justification whatsoever in continuing to deny contractors (like RIL) the marketing freedom in the domestic market specifically stipulated in New Exploration Licensing Policy (NELP) and the Production Sharing Contract (PSC)," the company said.

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RIL said the swapping guidelines in effect meant "granting marketing rights, with complete freedom, to the customers and allottees of KG-D6 gas."

The firm added that it was necessary for RIL to uphold the use restriction for D6 customer as the proposed guidelines can lead to KG-D6 allottees "trading" in their allocation.