RIL RNRL Gas Dispute: Not Yet Over

Anil Ambani has slugged it out with his older brother, Mukesh Ambani for four years and on 11^th October 2009, apparently set the tone for reconciliation, expressing hope that all disputes with Mukesh could be discussed and resolved in a matter of weeks. But Mukesh Ambani’s Reliance Industries Ltd (RIL) said the dispute was not really a family matter, but one that can be decisively resolved only by the Supreme Court.

At the heart of the fight between the two brothers is Anil Ambani’s demand that RIL supply gas to his company Reliance Natural Resources Ltd (RNRL) at $2.34 per mmbtu. The Bombay High Court decided in RNRL’s favour, but RIL moved the Supreme Court on July 4 challenging this decision.

For last many years, Anil Ambani has indulged in many a malicious campaign against RIL and its chairman. These campaigns reached their nadir in recent months through a vicious series of advertisements, unprecedented in India’s corporate history. This was followed by Anil Ambani’s endeavor to rope in NTPC in Reliance’s gas dispute. Over the last few months many in the government, including the Prime Minister and the Finance Minister, have said the brothers must put an end to such acrimony.

The picture began looking grim for RNRL with the decision of the eGoM to ensure that the country’s gas prices are in line with the market prices by approving a formula — which yields a price of $4.20 per million British thermal unit (mBtu) for the next 5 years. Anil having had to agree with the approved rate of $4.20 per mBtu soon also agreed to pay the disputed marketing margin to Reliance Industries under protest and sought natural gas to its power plant when it resumes operations after a maintenance shutdown.

Despite these past events, Reliance in its statement to the press said that, it welcomes Anil Ambani’s statement of reconciliation, and hopes that it is a positive change in the negative, calumnious and malafide campaign launched by R-ADAG against RIL. Mukesh Ambani said that this issue can be easily resolved, provided the proposal for reconciliation is anchored in good and honest intentions. According to RIL’s statement, the dispute under litigation is not merely a family matter, as Anil Ambani’s statement tries to make out to be. Another point that evokes a question is that, Anil Ambani, has yet again sought to communicate to RIL and its Chairman through the public domain, whereas he could have easily contacted his elder brother directly.

RIL in its statement indicated that, since national interests in terms of securing government’s revenue from the natural gas, the interests of RIL’s shareholders etc. are at stake transcend any private differences between two brothers or two corporate entities, can now only be decisively resolved by the decision of the Supreme Court of India. 20^th October is the date towards looking for a conclusion to this issue.

ADAG will pay marketing margin to RIL

Less than a month after it stopped paying marketing margin to Reliance Industries, Anil Ambani Group firm Reliance Infrastructure has agreed to pay the levy, although under protest, and has asked the Mukesh Ambani firm to resume natural gas supplies to its power plant.

R-Infra on October 7 wrote to Reliance saying it was instructing its "bank to effect full payment of the invoice (raised by RIL for supply of KG-D6 field gas to its Samalkot power plant) including the marketing margin element."

The company, which had paid $0.135 per million British thermal unit in marketing cost to RIL for over four months without protest, had on September 15 written to the Mukesh Ambani-firm saying it will no longer pay the "unauthorised and illegal" levy.

R-Infra defaulted on payment of Rs 12 lakh in marketing margin on the 0.56 mmscmd gas supplied to Samalot in the first half of September, leading to RIL sending a notice of suspension of supplies.

"We request you to withdraw the suspension notice dated September 28 and confirm immediate resumption of the supply of gas," R-Infra Vice-President Kamal Kant wrote to Reliance Group.

On the same day, the Anil Ambani Group firm also wrote to ministries of power and petroleum informing of the decision and reiterating its position that the levy was "unauthorized and nothing but abuse of its (RIL's) monopolistic position."

An ADAG group spokesperson did not immediately offer any comments on the issue.

Source: Reliance

Reliance's KG-D6 Gas comes to rescue

India’s largest private sector company Reliance Industries Ltd. (RIL) has come to the aid of drought affected northern states, and is helping them meet their electricity deficit.

Petroleum Ministry allocated additional natural gas from Reliance Group’s eastern offshore gas fields. Oil Minister Murli Deora had approved a temporary allocation of about 3.7 million standard cubic meters per day of KG-D6 gas to Lanco’s Kondapalli power plant in Andhra Pradesh, Utran plant in Gujarat and Pragati Power in Delhi.

The gas is helping generate about 800 MW of additional electricity and also help bridge the shortfall in hydro power generation due to sporadic rains.

H S Brahma, power secretary, said that all 10 mmscmd of gas is needed at power plants operating below capacity or about to be commissioned, and of this 3.7 mmscmd has been allocated.

KG-D6 gas is also helping the Power Ministry meet its 100-day agenda of adding 5,200 MW generations.

Dabhol starts drawing Reliance gas

The Dabhol power plant today started buying natural gas from Reliance Industries to cut electricity generation cost at the country's largest gas-fired unit.

"We started drawing (RIL's) KG-D6 gas from today. The volumes were around 4.5 million standard cubic meters per day," said A K Ahuja, Managing Director of Ratnagiri Gas and Power Pvt Ltd, the company that runs the 2,150 MW power plant and adjoining LNG receipt facility in Maharasthra.

The government had this month more than doubled RGPPL's allocation from KG-D6 to 5.67 million standard cubic meters per day that will help generate about 1,000 MW of electricity.

"We are currently operating three gas turbines producing 920-930 megawatt of electricity. We will add another 320 MW turbine by November-end, when the drawal would increase to 5.6 mmscmd," he said.

RGPPL was initially allocated 2.7 mmscmd of gas for the period between April and September but the company had not drawn even a single unit as it had a running contract with Petronet LNG Ltd to buy imported liquefied natural gas.

It paid a burner-tip price of $7.8 per million British thermal unit for the regassified-LNG sourced from Petronet.

"The delivered price of KG-D6 gas would be $6.2 per mmBtu," Ahuja said adding the cost of electricity generation will come down to about Rs 4 per unit from Rs 4.70 earlier.

Ahuja said RGPPL would add one more turbine by end December or early January and the last one by end March, when the drawals from KG-D6 would rise to 8.4 mmscmd.

RGPPL was currently generating electricity from three units and by the year end two more units would be made operational that would require an additional 1.6 mmscmd of gas from Reliance Group's KG-D6 fields.

"By March we expect all the units to be operational and that is when we would be able to start drawing our full entitlement of 8.4 mmscmd KG-D6 gas," he said.

RGPPL —- co-owned by state power utility NTPC and gas firm GAIL India — was among the three firms which were yet to draw on even a single unit of KG-D6 gas allocation.

The others are NTPC, which recently signed a Gas Sales Purchase Agreement for less than one-fourth of its entitlement of 2.67 mmscmd, And Essar Power that is negotiating a transportation agreement.

RGPPL did not take KG-D6 gas previously as it had a 'take-or-pay' contract with Petronet for supply of gas.

Reliance can produce 60 mmscmd of gas from KG-D6 fields but is restricting output to around 40 mmscmd in absence of offtake from existing customers like NTPC and failure of the government to name consumers beyond the initial 40 mmscmd.

Read More>>> Reliance

Natural Gas: An Alternative for Diesel in Power Generation

Source>>> Reliance News

Power sector has received much attention in recent times due to India’s rapid economic growth, which in turn requires infrastructure to support the high growth rate. As power is a vital infrastructure for the growth of any economy, demand from across the sectors has grown exponentially resulting in demand-supply imbalance.

At present, India has a total of 1,46,750 MW of power generation installed capacity. During 2007-08, the total energy supply was 664.6 billion units (BU) against the demand of 737 BU, resulting in 10% deficit in total demand-supply of energy in the country. Peak hour energy shortages amounted as high as 14% during the year.

As a result of increasing power shortages, consumers are forced to generate their energy requirements on their own. Diesel based power generators have been the most preferred mode of electricity generation over the years. Currently, the total installed capacity of diesel-fired generators used by residential and commercial sector is estimated to be around 15,000 MW, which is nearly 10% of the total installed capacity of the country. Exhaustive use of diesel for power generation has pushed the demand for diesel in recent times. During the first quarter of FY2008-09, power sector has witnessed increase of 152% in the demand of diesel, to a total requirement of nearly 53,000 tonnes. However, limited domestic availability of oil coupled with growing environmental concerns and rising petroleum product prices have forced the consumers to look for alternative for diesel.

With the initiation of gas market and expansion of gas distribution infrastructure in the country, natural gas has the potential to change the way consumers generate electricity during peak hours. Consumers also have an alternative fuel for electricity generation, which is much cheaper as compared to diesel. According to CRISIL Research Power Annual Review, the cost of electricity generation for 1 MW or above capacity units, natural gas is almost 57% cheaper and it costs Rs 2.1 per unit as compared to Rs 4.9 per unit from diesel.

The total capacity of bigger diesel-fired units, (i.e. 1 MW or above) amounts to 12,000 MW in the country. Assuming that these units are operational at 50% plant-load factor, the total energy generation would be over 52 BU with aggregate cost of around 25,750 crore. If the same amount of electricity is being generated from natural, the total cost of generation would be around Rs 11,000 crore, resulting in savings of Rs 14,750 crore thus making natural gas an undisputed choice over diesel.

Even for less than 1 MW diesel-fired units, which are mainly used by households, offices and malls, the cost of power generation from natural gas would be 75 % cheaper (Rs 2.5-3 per unit) as compared to Rs 11-12 per unit from diesel presently. Assuming that this capacity operates at 10% plant load factor to supply the peak demand, the total energy generation would be around 2.6 BU with the total cost of Rs 2,890 crore, whereas, same amount of electricity generation would cost around 657 crore from natural gas at Rs 2.5-3 per unit. Thus, use of natural gas will save as much as Rs 2,233 crore. The total savings on account of substitution of diesel with natural gas for power generation would be around Rs 17,000 crore.

Moreover, replacement of diesel with natural gas for electricity generation also becomes imperative in the wake of burgeoning losses on sale of diesel every year. The total under-recovery on the sale of diesel during 2007-08 amounted to Rs 35,000 crores while during FY2008-09 diesel subsidies is estimated to be around 95,000 crore. Considering the fact that almost 15% of diesel is being used for power generation out of the total diesel consumed in the country, substitution of diesel with natural gas can save another Rs 14,250 crore approximately from the outgoing subsidy. Cumulatively, the total savings by utilizing natural gas instead of diesel can amount to Rs 31,250 crore, which can be utilized for adding another 9,000 MW gas based power generation capacity or two ultra-mega power projects with a total capacity of 8,000 MW.

Apart from cost benefits, natural gas can be easily transported to the point of consumption whether houses or small industries through pipes and does not need to be stored. Unlike liquid fuels, natural gas is environment friendly product and does not either affects the health or creates damage to house or equipments. Natural gas is already powering gas-fired turbines in the country for large scale generation and posses the potential to replace the diesel for peak hour energy demand in distributed power system through micro gas turbines.

Currently, the country produces 88 MMSCMD of gas domestically. Gas supply scenario is likely to change dramatically with the commencement of production of gas from Reliance Industries Ltd. KG Basin. The gigantic field of RIL is likely to produce 40 million standard cubic metre of gas every day (MMSCMD) initially, which is expected to jump to 80 MMSCMD during the peak production. Additionally, major discoveries by GSPC and ONGC have also boosted the domestic supply prospects of natural gas. In addition to this, the LNG liquefication capacity in the country, which stands at 7.5 MMTPA right now, is likely to jump to 27.5 MMTPA (equivalent to 110 million standard cubic metres per day) during next five years. Supply from both the source can fuel the gas requirement for substituting diesel for power generation.

The use of natural gas, in place of diesel can positive environmental effects. Apart from that, it can have large monetary advantages. The money this saved could be further used for adding extra base load capacities, which can help the country bridge the demand-supply mismatch to some extent.