City inching closer to pipeline dream

It seems that there is hope round the corner for the industrial aspirations of the energy-starved north Kerala. If the Rs 3,100-crore project of laying a natural gas pipeline from Kochi LNG terminal takes shape, Kozhikode will enter the big league of cities with a direct-to-home piped gas distribution network.

The 720-km-long Kochi-Koottanad-Bangalore-Mangalore pipeline (KKBMPL) project is being implemented by Kerala Gail Gas Limited, a joint venture project between Kerala State Industrial Development Corporation (KSIDC) and Gail Gas Limited. Currently the firm is in the process of obtaining a right of way from landowners along the 720km stretch. In Kerala, the pipeline would pass through Ernakulam, Thrissur, Palakkad, Malappuram, Kozhikode, Kannur and Kasargod. The work on this is likely to be completed by March 2013. Meanwhile, the work on the 44-km-long first phase of the pipeline from Kochi to Kalamassery is nearing completion.

According to KSIDC officials, the company will also bid for setting up a city gas distribution network in Ernakulam in the first phase when the Petroleum and Natural Gas Regulatory Board (PNGRB) issues notification. The proposed network for Kozhikode would provide households with a direct supply of piped natural gas. Further it will free up city-based gas cylinders, which could be used for gas distribution in the rural areas.

An earlier notification issued by PNGRB for Ernakulam geographical area got cancelled in November 2011 and a re-notification is expected soon. The gas pipeline will use 2.5 MMTP of natural gas that will be made available after the LNG terminal in Kochi is commissioned for industrial and infrastructure development across the state.

A top KSIDC official said the gas network will provide a reliable supply of clean and cheap source of energy. Industrial clusters will also get an opportunity to set up captive gas-based power generation units using the gas feed. "This is going to be an attractive option for Kozhikode as it has several power intensive industrial units," he said.

The 720-km-long Kochi-Koottanad-Bangalore-Mangalore pipeline would pass through Ernakulam, Thrissur, Palakkad, Malappuram, Kozhikode, Kannur and Kasargod

Competition Commission closes case against GGCL

Competition Commission of India on Monday ordered closure of case filed by the Gujarat Government against BG group subsidiary, Gujarat Gas Company Ltd (GGCL), accusing it of arbitrarily hiking CNG prices in Surat.

"The commission, prima facie, is of the opinion that the conduct of GGCL is not abusive in terms of the provisions of the Act. There is no prima facie case made out for referring it to investigation," CCI stated in the order on Monday.

Since Petroleum and Natural Gas Regulatory Board Act is a special legislation for regulating the price mechanism and to ensure fair trade and competition among the entities, the Competition Act cannot be invoked complaining of increase in price, etc, the order said.

The commission on Monday passed the order after conducting hearing in two separate cases: one filed by the Gujarat Government and the other by the Gujarat Textile Processors Association (GTPA).

Both the complaints essentially alleged that GGCL had abused its dominant position by creating artificial scarcity of natural gas and increasing prices by 25 per cent during 2010-11 to reap windfall gains.

GGCL, a city gas distribution (CGD) company in Gujarat, supplies natural gas to domestic consumers, commercial establishments and industry in Surat, Bharuch and Ankleshwar. The company has a gas pipeline network of around 3,200 km.

The Gujarat Government had moved CCI against GGCL in November last year, saying it had received a lot of complaints against the company, regarding its price hike.

In June 2008, GGCL had raised the prices of natural gas from Rs 27.50 per kg to 39.75 per kg, according to the government.

The CCI order observed that operating margins of Indraprastha Gas Limited, a peer company operating in Delhi, were higher than that of GGCL.

Gujarat government was of the view that the case should be probed as the price hike was not driven by market forces and the company had hiked the prices as it was enjoying a monopoly.

Gujarat Textile Processors Association had also moved Competition Commission saying GGCL had arbitrarily hiked the gas prices though it was sourcing it cheap.

GGCL currently distributes around 3.5 million metric standard cubic meters per day (mmscmd) of natural gas to nearly 3.30 lakh customers.

GAIL opposes move to regulate marketing margin for LNG; ok with control on domestic gas

State-run Gail India has opposed the government's move to regulate marketing margin for imported liquefied natural gas but accepted its control on domestically produced gas.
"We have taken up the matter with the government. An attempt to control marketing margin for regassified-LNG would discourage its import," Gail chairman & managing director BC Tripathi said.
Gail supports the government decision to regulate marketing margin for gas produced domestically as per the Supreme Court decision that the government is the owner of natural resources, Tripathi said.
Oil ministry officials, however, said that the government's directive to the Petroleum & Natural Gas Regulatory Board (PNGRB) would be applicable to "all marketers" of natural gas in the country including imported gas.
"The matter is with PNGRB and it will decide whether the marketing margin for imported gas should be regulated or not? The regulator is to protect gas consumers from a monopolistic situation where few companies own LNG and gas transportation facilities," a government official with direct knowledge of the matter said requesting anonymity.
ETwrote first on Dec 27 that the government had decided to regulate natural gas marketing charges levied by companies such as Reliance Industries and Gail to protect domestic consumers in the short-supplied market.
Reliance Industries had already sent a letter to the oil ministry questioning the legality of the government's move to regulate marketing margins for KG-D6 gas and told the ministry that such a step would be discriminatory as state-run firms also used a similar levy to cover costs and risks. It argued that the levy was purely a matter between buyers and sellers.
Rebuffing RIL earlier this month, the oil ministry had said that the petroleum regulator would determine marketing margins for all natural gas on the basis of costs.
Until now, marketing margins were negotiated between buyers and sellers. While Reliance charged $0.135 per unit marketing margin for supplying its KG-D6 gas, Gail levied $0.17 per unit for supplying imported gas and gas supplied from the Panna-Mukta and Tapti fields.
Gail also charges $0.11 per unit marketing margin on administered price mechanism (APM) gas, which was approved by the cabinet on May 31 last year. APM gas is produced from nominated fields operated by ONGC and Oil India, but Gail markets their output.
According to industry executives, marketing efforts include supply management, contract negotiations, market tie-up, market surveys, dispute resolution, customer facilities, risk of take or pay, expenses in the form of bad debts, inventory carrying costs and maintaining administrative infrastructure all over the country.

Oil Ministry proposes key changes in natural gas allocation policy

The Oil Ministry has suggested key changes in the natural gas allocation policy in the view of sharp drop in output from Reliance Industries’ eastern offshore KG-D6 block.
In a note to the Empowered Group of Ministers (EGoM) headed by Finance Minister Pranab Mukherjee, the ministry has proposed to stop gas supplies to power producers that do not sell electricity at regulated tariff.
Also, future gas allocations are to be made only to urea fertiliser plants and fuel allocation to phosphates and potassium fertiliser producers be stopped.
The ministry has also proposed to revise the priority attached to city gas distribution (CGD) networks and place them next to fertiliser and stranded assets of power sectors and before the new demands of fertiliser and power sector.
Oil Minister S Jaipal Reddy said it is for the EGoM to take a decision on these so that scarce domestic natural gas is available only for core sectors.
KG-D6 gas output has fallen to below 39 million standard cubic meters per day after touching peak of 60 mmscmd in March 2010, prompting the ministry to suggest changes in the allocation policy.
Reddy, who got a first hand account of problems being faced by power producers when corporate leaders, including Anil Ambani of Reliance Power and Ashok Hinduja of Hinduja Group, briefed him about the fuel shortages, said no dates for the EGoM have been fixed yet.
“They (power producers) explained the various aspects of problem which they are facing. I have already circulated a note for EGoM and these aspects will be brought before the EGoM,” he said.
Power producers wanted priority allocation of natural gas to meet energy deficit in the country.
“Decision will be taken at the EGoM. Until EGoM meets, I cannot comment on their demands,” Reddy said.
His Ministry’s agenda for EGoM recommends that “future gas allocations be made only to urea fertiliser plants” as gas allocation to urea has been accorded top priority. It says that supplies to phosphates and potassium fertiliser producers be stopped since the government pays them a fixed subsidy and “cheaper input gas does not lead to lower subsidy burden on the government”.
It wants the EGoM to approve that “all existing and future allocations of NELP gas for power plants will be subject to the condition that the entire electricity produced from allocated gas shall only be sold to the distribution licensees at tariffs determined (or adopted) by the tariff regulator.”
Natural production from KG-D6 has fallen to less than 39 mmcmd from the 61.5 mmcmd peak in March 2010. The output is far short of the 70.39 mmcmd forecast in the Field Development Plan approved in 2006.
The fall forced the oil ministry to first apply a pro-rata cut in supplies to all consumers in July 2010 and with further dip in output it restricted supplies to only core sectors of fertiliser, LPG and power.

Plan to supply piped natural gas to Udyog Vihar in limbo

GURGAON: The year-old plans to supply piped natural gas (PNG) to Udyog Vihar's industries are now in a limbo, thanks to the bureaucratic hurdles faced by the supplier in acquiring a permit. It has now been over one year since Haryana City Gas Distribution Limited, the prime supplier of PNG in the city, first sought permission from the industrial authority, HSIIDC, to set up PNG lines in all the phases of Udyog Vihar. But the official sanction is yet to arrive.
Hamvir Singh, HSIIDC, Gurgaon DGM, said that the matter of giving out the permit was beyond his jurisdiction. "Only the head offices in Panchkula and Chandigarh can give out the permits. The application is with them. I can't say how long the whole process will take," he said.
According to Haryana City Gas representatives, PNG plans for the area have been put on hold indefinitely. "We have not been able to lay pipelines in Udyog Vihar lanes completely due to the delay in getting HSIIDC's permission," said Sandeep Sharma, vice-president, Haryana City Gas. The supply firm has laid down about 70km of pipeline throughout the city, stopping just at the borderlines of Udyog Vihar. "This is where HSIIDC's area begins, and the network of pipelines stops, because to extend further we need HSIIDC's permission," added Sharma.
The original plans of Haryana City Gas were to get the main line till Udyog Vihar Phase 4 and Phase 1 - projects which are already completed - and further lay down the branch lines inside the industrial areas. "We haven't got any response from the HSIIDC as yet. We have no clue as to when the permit will be granted," he said.
Conventional modes of power have either proved too inefficient or too expensive for Udyog Vihar's industrialists. Rising tariff rates in Gurgaon have only been paralleled by a rising power deficit, and diesel based backup systems have driven the costs further up. This is why industry representatives have shown interest in PNG which remains the only viable alternative for the area's power requirements, being efficient and cost-effective in equal measure.
"There are certain advantages of shifting to PNG. With natural gas, inventory management costs are nil, handling hassles don't exist, and it is pollution-free," said a Haryana City Gas representatives.
Certain industries on the peripheries of Phase 1, Udyog Vihar, where the pipelines have just about reached, have already subscribed to PNG supply, and are utilizing the fuel for production as well as backup needs. But small scale units within the main industrial areas have to wait longer, at least as long as it takes HSIIDC to clear the proposal.
"Industries need electricity at least for 16 hrs a day. But we get supply hardly for 5-6 hrs a day," said B B Sharma, an industrialist. He said that diesel generators cost at least Rs 10 a unit today, and peak hour electricity rates have gone up to Rs 8 a unit. "PNG gas would surely be cheaper".

RIL asked to sign gas supply deals with 16 more firms

Concerned that a further slippage in investment could cost the economy dear, the government has asked Reliance Industries (RIL), which accounts for about a third of India’s gas output, to enter into new supply pacts with 16 leading consumers on the priority list.
According to official sources, the petroleum ministry has asked RIL to sign natural gas sale and purchase agreements with these priority consumers in the fertiliser, power and city gas distribution sectors. The company had earlier apprised the ministry of its inability to start supplies to these users in view of the sharp dip in KG-D6 output.
These are the priority customers that were allotted gas by the empowered group of ministers (EGoM) led by Pranab Mukherjee but are yet to ink purchase deals.
RIL has not been ready to commit supplies to more customers as possible supply cuts in future would put these customers in a difficult spot once investments are made counting on such supply contracts. There have been certain precedents of such problems faced by gas users. Companies including Essar Steel have already moved court against gas supply cuts by RIL prompted by reduced supply.
The unmet allocation to priority sector is a little less than 4 million metric standard cubic metres a day (mmscmd), which is roughly a tenth of RIL’s 42 mmscmd gas output from the field now. The company needs about 52 mmscmd of gas to meet its obligation to all priority consumers.
The oil ministry, which is seeking the EGoM’s approval for a road map for supply cuts to even priority sector consumers in the event of a further decline in gas production, is set to inform the ministerial panel that instructions have been issued to RIL in this regard, said an official who is privy to discussions within the government.

Ministry rejects RIL's stand on marketing margin

The Petroleum Ministry has rejected Reliance Industries' (RIL) contention that charging of marketing margin on gas was an issue between the buyer and the seller and has said that the Petroleum and Natural Gas Regulatory Board (PNGRB) will take a final call on the issue.

In a letter to RIL Executive Director P. M. S. Prasad, on Thursday, Petroleum Ministry Under Secretary Arunoday Goswami states: “the question of the quantum of marketing margin applicable on sale of gas by any marketer has since been considered in the Ministry and a decision has been taken to refer the matter to the PNGRB. Under Sec. 11(j) of the Petroleum and Natural Gas Regulatory Board Act 2006, the board has now been entrusted with the determination of the quantum of marketing margin chargeable on sale of natural gas to end-consumers by a marketing entity, on the basis of the marketing costs incurred by it.”

The Hindu had, on January 6, reported that the matter was likely to be referred to the PNGRB. The stand taken by the Petroleum Ministry is certainly going to create problems for RIL in marketing its present and future gas produce and impact its profit margins. At present, RIL charges $0.135 per mBtu (million British thermal unit) as marketing margin over-and-above $4.2 mBtu. The company has claimed that the marketing margin is required to cover for the risk and cost associated with marketing. It had stated that it was an issue mutually settled between the buyer and the seller and as per the Production Sharing Contract (PSC), for levying any marketing margin, government intervention was not required. The government had maintained that it had referred the issue to the Empowered Group of Ministers (EGoM) headed by Finance Minister Pranab Mukherjee on the insistence of the Department of Fertilisers.

The letter points out that the issue of marketing margin charged by RIL was raised by the Fertiliser Association of India followed by the Department of Fertilisers. Subsequently, on receipt of a reference from the Central Vigilance Commission alleging that RIL had unauthorisedly levied marketing margin, a reference was made by the Department of Fertilisers asking for certain clarifications in this regard.

Adani Group, Oil India to bid for BG Group's 65% stake in GGCL

The Adani group and state-run oil companies have signed confidentiality agreements to bid for the controlling stake of the BG Group in India's biggest private-sector city gas distribution venture Gujarat Gas Co Ltd, industry officials said.
State-run companies, such as Oil India Ltd and GSPC, are among the companies that have signed non-discosure agreements with the BG Group for the controlling stake in Gujarat Gas which BG is exiting, they said. Torrent Power, which was also considering a bid, is learnt to have shelved its plan, sources said. Gail India Ltd has still not got the approval to bid.
BG Group's adviser Citigroup has opened a virtual data room with past 10 years financial records of GGCL besides gas contracts details.
"Interested bidders will submit their expression of interests by January 10. The picture would be clear once the bids are shortlisted," said GGCL chairman Hasmukh Shah. Incorporated in 1980, GGCL caters to around 3.50 lakh gas customers in South Gujarat market. Indian and foreign institutions and retail investors together hold 35% stake in GGCL.
BG Group is aiming to sell off its entire 65.12% stake in GGCL. Besides overall sentiment, the capitalisation of GGCL is eroded on account of rising dollar against Rupee, high LNG prices and BG Group's announcement to exit from CGD business in November last year.
On Tuesday, GGCL scrip traded at 355-360 on BSE, down from its 52 week high 463 on September 2, 2011. From almost 6,000 crore valuation in September last year, GGCL's capitalisation has fallen to 4,600 crore. The successful bidder will have to shell out close to 4,000 crore to acquire 65% stake of BG Group and make mandatory open offer to purchase 26% stake from the non-promoter shareholders.