PNGRB infighting holds up city gas distribution licences

The government\'s plan to promote natural gas as a cleaner transportation and industrial fuel may remain a pipe dream, with the Petroleum and Natural Gas Regulatory Board (PNGRB) caught in internal strife, unable to allocate city gas distribution projects according to schedule.
The PNGRB was set up in 2006 by the Centre to expedite development of oil and gas supply infrastructure in the country. The regulator has envisaged awarding 201 city gas distribution (CGD) projects by 2015. Against that, it has so far allocated licences for only 13 CGD projects under the first and second rounds of bidding held in 2009. The regulatory board\'s functioning has been constrained as its members and chairman are at loggerheads. Board members have already moved the court against what they call the arbitrary way of functioning of the chairman.
The undue delay in allocation of CGD projects has started exacting its toll on confidence of investors, who are made to wait endlessly for licences after making substantial investments in undertaking feasibility survey, industry sources told FE. Further, industrial and commercial consumers with natural gas demand up to 50,000 standard cubic metre per day (scmd) are also suffering as they are required to meet their fuel demand from CGD projects. There is a huge demand for natural gas from such consumers in various states.
Licences for CGD projects which were put up for auction in the third and fourth rounds of bidding started by the regulatory board last year are yet to be awarded.
Technical bids were opened on February 18 for the third round of bidding for allocation of licences for seven CGD projects in cities including Ludhiana, Asansol, Jallandhar, Kutch West, Bhavnagar and Jamnagar. As many as 51 players participated in the third round of bidding. But price bids are yet to be opened.
The PNGRB kicked off the process for the fourth round of bidding on September 29 for allocation of licences for eight CGD projects in cities including Ernakulam, Guna, Alibag-Pen, Guna and Shahjahanpur. But no one knows when the bidding process will be concluded. Bidding has already been postponed seven times. Also, the PNGRB wants to add more bid evaluation parameters. It has called for an open house meeting to seek bidders\' inputs. However, some private bidders told FE that changing the bidding criteria midway is not in line with the regulations. They suspect the PNGRB is trying to influence the outcome of the bidding through the open house meet.
Oil PSUs, including GAIL, IOC and BPCL, are also in the race for CGD project licences. Since most of the PNGRB staff are employees of oil PSUs working on deputation, their is an obvious conflict of interest, private players point out.

PNGRB infighting holds up city gas distribution licence

The government\'s plan to promote natural gas as a cleaner transportation and industrial fuel may remain a pipe dream, with the Petroleum and Natural Gas Regulatory Board (PNGRB) caught in internal strife, unable to allocate city gas distribution projects according to schedule.

The PNGRB was set up in 2006 by the Centre to expedite development of oil and gas supply infrastructure in the country. The regulator has envisaged awarding 201 city gas distribution (CGD) projects by 2015. Against that, it has so far allocated licences for only 13 CGD projects under the first and second rounds of bidding held in 2009.

The regulatory board\'s functioning has been constrained as its members and chairman are at loggerheads. Board members have already moved the court against what they call the arbitrary way of functioning of the chairman.

The undue delay in allocation of CGD projects has started exacting its toll on confidence of investors, who are made to wait endlessly for licences after making substantial investments in undertaking feasibility survey, industry sources told FE.

Further, industrial and commercial consumers with natural gas demand up to 50,000 standard cubic metre per day (scmd) are also suffering as they are required to meet their fuel demand from CGD projects. There is a huge demand for natural gas from such consumers in various states.

Licences for CGD projects which were put up for auction in the third and fourth rounds of bidding started by the regulatory board last year are yet to be awarded.

Technical bids were opened on February 18 for the third round of bidding for allocation of licences for seven CGD projects in cities including Ludhiana, Asansol, Jallandhar, Kutch West, Bhavnagar and Jamnagar. As many as 51 players participated in the third round of bidding. But price bids are yet to be opened.

The PNGRB kicked off the process for the fourth round of bidding on September 29 for allocation of licences for eight CGD projects in cities including Ernakulam, Guna, Alibag-Pen, Guna and Shahjahanpur. But no one knows when the bidding process will be concluded. Bidding has already been postponed seven times.

Also, the PNGRB wants to add more bid evaluation parameters. It has called for an open house meeting to seek bidders\' inputs. However, some private bidders told FE that changing the bidding criteria midway is not in line with the regulations. They suspect the PNGRB is trying to influence the outcome of the bidding through the open house meet.

Oil PSUs, including GAIL, IOC and BPCL, are also in the race for CGD project licences. Since most of the PNGRB staff are employees of oil PSUs working on deputation, their is an obvious conflict of interest, private players point out. 

RIL to suspend gas supply to 4 fertiliser plants from Oct 6

Reliance Industries has served a notice for suspension of gas supplies to four fertiliser plants in Uttar Pradesh from tomorrow unless they enhance their financial guarantees to cover for state sales tax.
RIL on October 1 served a notice for suspension of supplies to plants of Indo Gulf Fertiliser, IFFCO, KRIBHCO, Shyam Fertilisers and Tata Chemicals from 0600 hours tomorrow, sources privy to the development said.
The fertiliser firms, which produce about 2 million tonnes of urea from gas sourced from RIL, are opposed to providing financial guarantees in the form of letters of credit (LC) to cover for liabilities arising out of the levy of local sales tax on gas sales, as it would increase the cost of production and subsidy payouts.
RIL supplies some 4 million standard cubic metres per day of natural gas from its eastern offshore KG-D6 fields to these plants. Like elsewhere in the country, it has been charging central sales tax of 2 per cent from users in Uttar Pradesh.
However, the state government has refused to accept these transactions as inter-state sales and have demanded that local sales tax of 21 per cent should be paid. Tax as the liability of consumers has been clearly enshrined in the Gas Sales and Purchase Agreement (GSPAs) RIL signed with fertiliser and
other users.
Naturally, users should have contested the demand for higher sales tax, but strangely, RIL went to the Allahabad High Court challenging the demand. The High Court on July 26, 2010, stayed the Uttar Pradesh government demand. The state government has appealed against the stay in Supreme Court.
Sources said RIL is demanding that users in Uttar Pradesh enhance the value of their Letters of Credit, which were previously submitted as guarantees against default, to cover for payments in case the state sales tax liability was to materalise.
So far, state power utility NTPC is the only firm that has enhanced its LC, while fertiliser firms have not complied with RIL's demand so far, leading to the notice for suspension of supplies.
While the fertiliser firms refused comments, the Fertiliser Association of India (FAI) has shot off letters to the Oil and Fertiliser Ministry protesting against the RIL move.
In an October 3 letter, FAI Director General Satish Chander said there was no need for enhancing the LCs as the Supreme Court has not vacated the stay given by the Allahabad High Court.
"Any increase in the limit of LC will increase the cost of domestic urea production and has a direct bearing on the subsidy payable by the government. The demand of RIL for a higher LC is totally unjustified," he wrote.
RIL had last year, too, threatened to suspend supply to the fertiliser plants with effect from July 15, 2010, if the value of their LCs were not raised.
While the threat was executed, RIL has again issued the notice because the tax liability, in case the Uttar Pradesh government's demand is upheld, amounts to a whopping Rs 750 crore.
While Chander asked for the intervention of Oil Secretary G C Chaturvedi and Fertiliser Secretary Sutanu Behuria in the matter, sources said RIL has also informed the Oil Ministry of the notice for suspension of supplies.
Chander said any disruption in RIL gas supply will affect production of urea, whose demand has been "very good" because of heightened agricultural activity on the back of the good monsoon.
"Any loss in production of urea will have to be met through higher imports. We will be substituting low cost urea production in the country by a very high cost of imported urea. The country will end up paying heavily through the exchequer," he wrote.
Fertiliser companies would also be liable to pay a penalty under the 'ship or pay' clause of their Gas Transportation Agreements with Reliance Gas Transportation Infrastructure Ltd (RGTIL) and state-owned GAIL India Ltd.
"The Empowered Group of Ministers (EGoM) has allocated the gas to fertiliser units on a priority basis for full capacity utilisation of urea plants in view of fertiliser being an essential input for agriculture. RIL's decision to unilaterally decide to stop the supply of gas to fertiliser plants in UP is unjustified and also violative of the decision of the EGoM," he added.