Monday, February 16, 2009

UPA re-prioritising gas distribution in the run-up to the elections

UPA re-prioritising gas distribution

10 Feb 2009, 2108 hrs IST, Soma Bannerjee & Prabha Jagannathan, ET Bureau

NEW DELHI: An EGoM may have decided to prioritise low dependence on fertiliser imports as well as gas supply to the sector when it comes to the RIL’s KG basin (D6) produce but politics appears to have other plans. General elections in mid 2009, but more specifically, assembly polls in key states like Andhra where the ruling Congress has honed its “free power for farm” plank into a shining populist shibboleth, may now find the UPA re-prioritising gas distribution in the run-up to the elections. This would mean that instead of relegating gas supply to the power sector to the second phase pegged around mid April, the sector would get priority supply in the first phase of supply, from end February. The fertiliser sector, as a consequence, would only begin to receive supply in the second phase beginning mid April. Urgent fertiliser (mainly urea) needs in the meantime would, instead, be met wholly through imports as finished fertilisers. State chief minister Y S Rajashekhar Reddy (YSR) was here last week lobbying hectically with EGoM head and external affairs minister Pranab Mukherjee, power minister Sushil Kumar Shinde and petroleum minister Murli Deora for an urgent re-think on KG Basin gas allocation priorities to the power sector. The proposal is being mooted, significantly, on the eve of RIL’s plans to start signing term sheets with prospective customers within the next fortnight or so. In a letter written to Mr Mukherjee on February 2, YSR suggested a high level meeting for taking a decision on the issue with the ministers and RIL representatives present. The subliminal message in the note? If we don’t manage to garner enough power for markedly short-supplied AP, it could dent the party’s electoral performance noticeably. What is high irony, though, the letter to his party’s senior most leader at the national level does not suggest a meeting with fertiliser minister and UPA ally Mr Ram Vilas Paswan from whose sector he wants to divert the impending gas supply, even if only in the run-up to assembly and general elections, strictly in that order. The first five mmscd of KG Basin gas is set for production from February 25, totalling 40 mmscd roughly by the end of June or thereabouts. Of that, the EGoM earmarked the bulk of 18 mmscmd for the power sector and another 14 mmscmd for the fertiliser sector, three mmscmd for LPG extraction and another five mmscd for city-based piped gas. Over and above that, another 1.7 mmscmd of gas is set to be released to the Ratnagiri Power Projects Ltd in Maharashtra, ranking alongside fertiliser in priority. This means that the fertiliser sector plants on the mainline and the Ratnagiri project would get first charge on the gas to be produced and released by the RIL. The EGoM which met on October 23 2008 under the chairmanship of Mukherjee also directed of the gas allocated to the power sector, power projects in AP should get priority and that is something that the state chief minister is extremely keen on getting re-phrased and re-prioritised before the first of RIL’s KG Basin gas starts production end February, atleast for the weeks leading upto the assembly and general elections. “Many states in the country today have been suffering from severe shortages of power. The problem will be even more acute in the months of March and April because of summer, when lots of ground water drawls are required. Besides, globally the prices of urea have fallen from $900/tonne in May 2008 to $250 per tonne now. So, it makes greater sense to utilise the available gas first for the power sector and then for fertilisers,” YSR’s missive to Mr Mukherjee asserts. The letter has suggested that the fertilser sector that has been thirsting for gas for sometime now (and the shortfall of impacting directly on capacity utilisation and production and leaving the country__ the biggest fertiliser shopper in the world market at the complete mercy of export cartels at the height of the peak prices that both fertiliser inputs and finished ferts hit in 2008. India’s urea needs (27 m tonnes p.a,) already rely heavily on imports (6.7m tonnes imported in FY 08) and urea capacity is not increasing at the pace needed to meet the 3% annual growth in demand. Some three million tonnes of additional capacity is expected to be added in the next two years. However, natural gas availability remains a key block to capacity addition although a big 700/ of the 86% of the captive ammonia -urea capacity in the country is based on natural gas although government policy pro-actively favours conversion of all non-gas units to gas based units by March 2010. Gas, along with naphtha, fuel oil or LSHS are major feedstock for urea and of these, gas is the cheapest and the urea thus produced is the cheapest, with the lowest manufacturing cost per unit. “This arrangement is required for just 45 days as by the middle of May 2009, both power and fertilsier units will anyway get gas. I therefore request you to consider a change in the warrant of priority of gas allocation for just two months, that is, for the months of March and April 2009 by interchanging the priority between fertilisers and power so that the power sector can get priority over fertiliser during these two months,” the letter states. Speaking to ET, the high profile AP chief minister maintained “The kharif season requirements for fertilisers are topmost in July, which is the key sowing season. The only fertiliser Rabi crops now sown would need is urea which is much cheaper now compared to mid 2008 and can be imported in the finished form to meet the needs of agriculture. But what is crucial is that AP has acute power shortage, also in the key agriculture sector. Ensuring a re-prioritisation of gas supply to the power sector countrywide for just March and April will mean that in peak summer, states with acute power shortfall will not suffer whether for the industrial sector or for agriculture. According to the current decision, the power sector will only get gas supply in the second trance of KG Basin Gas release from somewhere in mid April 2009, which means that in March 2009, they will not be able to get any gas. Not only will sufficient gas supply to the sector in the first phase in the place of the fertiliser sector mean that the Ratnagiri power plant gets an additional 2500 mw to Maharashtra, power projects in AP will also get an additional 2500 mw of power if the available gas is given to the power sector for the two months. That alone spells 5000 mw of additional power in the peak power demand period.” Nor indeed do YSR’s political compulsions to re-prioritise gas supply take into account the fact that the country is passing through an economic downturn on account of which politically motivated funding of imports takes priority, particularly since several fertiliser inputs and raw materials are still relatively highly priced compared to imports in 2007. For instance, Rock Phosphate, a key input into DAP, still reigns in the global market at $250/tonne compared to $350/tonne at the peak time but is nowhere near the $70-80/tonne it was bought at in 2007 from the same market. Glossing over that, YSR’s letter contends smugly “... we can import fertilisers at some price but not power at any cost. ...” Interestingly enough, Nagarjuna Fertilsers in AP, among the big fertiliser plants that have fully converted to gas-based and are therefore entitled to gas supply from the first tranche of 14 mmscmd earmarked to the sector, is set also to be among the first in the sector to receive the gas. Currently, the feriliser units that have fully converted to gas-based plants in consonance with the government’s own policy rely heavily on gas supplied at administered price to them for the fuel and feedstock but also need to shop in the spot market for LNG at relatively high price to bridge the shortfall. In the event of the KG Basin Gas not being supplied to them on priority from February to March, they would have to depend on the same means despite the EGoM’s decision and the lengthy wait for production of KG Basin Gas. Several of the units identified for gas supply in the sector are in the private sector since the parent ministry, according to officials in the know, has accorded equal priority to public, cooperative and private sector units on this although they have earlier been occasions where first two sectors were granted priority vis a vis fuel/feedstock. What’s worse, importing finished urea would be directly to their disadvantage. Among those units who would lose out would be not just Nagarjuna Fertilsers but also the Aonla, Phulpur units of Iffco, one plant of KK Birla etc. Energy Conservation Consciousness (ECC) Campaign is a step towards better Energy Habits. We can avoid wastages in work area by implementing effortless energy conservation tips to create a more sustainable and greener organization.

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