Hyderabad/New Delhi: The dispute over the pricing of natural gas from Krishna Godavari basin has taken another interesting turn with the Andhra Pradesh government aligning with the Anil Dhirubhai Ambani Group to take on Reliance Industries Ltd.
The state, which is Congress ruled, has been urging the United Progressive Alliance (UPA) at the Centre—which is again Congress-led—to help secure special gas pricing for the state’s gas-based power generation units from Reliance Industries, controlled by Mukesh Ambani.
Brothers Anil and Mukesh are in a high-stakes legal battle over gas supplies from Reliance Industries’ KG basin gas block. Acting on a complaint from Anil Ambani’s Reliance Natural Resources Ltd over previous contractual obligations, the Bombay high court recently issued an interim order restricting Reliance Industries from selling KG gas to any company other than Reliance Natural and NTPC Ltd.
That has also put paid, even if temporarily, to attempts by Reliance Industries to arrive at a price for its gas, even though the Union government had signed off on the method—bids from potential buyers. It is this pricing that AP is vehemently opposed to, as it seeks a lower rate for its projects. KG basin is off the Andhra Pradesh coast and any gas will have to be transported in pipelines that cross the state.
AP is struggling because, of the 2,700MW gas-based power generation capacity in the state, 2,070MW is lying idle due to inadequate gas supply. The state pays Rs3.20 per standard cu.m of gas, plus transportation charges. It is opposed to the market-driven price of Rs8.20 per cu.m and believes that, if such as price is accepted, it will impose an additional burden of Rs2,000 crore on the state.
Trying to fight common ground in their respective battles with Reliance Industries, Anil Ambani met AP chief minister Y.S. Rajasekhara Reddy on 26 June and made a detailed presentation on how to potentially counter Reliance Industries’ current gas plans, said one senior state government official familar with the meeting. At the meeting, Reddy also urged Anil Ambani to set up his own power projects in the state.
“Keeping in view his interests, as well as ensuring that the gas price is reduced, Anil Ambani supported the AP government’s (plan) to increase pressure on the Centre. The meeting with Anil Ambani (was) aimed at working out a joint strategy to fight against Mukesh Ambani’s Reliance Industries,” said this senior state government official who did not wish to be identified.
According to this official, the state government is also keen to work with Anil Ambani, whose group will have a 28% share in the KG basin gas if the Court’s final verdict also comes in his favour. “AP wants to forge some alliance with (Anil Ambani) to obtain some portion of his gas share for industrial units in the state,” this official added.
A spokesperson for Anil Ambani declined to comment on the issue. Several attempts to get a Reliance Industries’ spokesperson to respond to this story were unsuccessful.
Meanwhile, adding a fresh twist to the ongoing battle, Reddy has also written to Prime Minister Manmohan Singh in a letter dated 29 June, urging the Union government to provide half of the gas produced from KG basin to power and fertilizer units at the administered price mechanism (APM) prices; allow state governments to levy transit fees for gas pipelines; and allot half of the Centre’s free gas, under a production-sharing contract, to the states.
In the letter, Reddy alleged that Reliance Industries’ control over gas production from the KG basin “is leading to a perfect monopolistic situation; a government monopoly being substituted by the private monopoly.”
In a phone interview on Sunday, Rachel Chatterjee, chairperson and managing director, Andhra Pradesh Transmission Commission, alleged that “there is no market in gas. Currently only one player has called for the bids. Basically it is a monopoly situation. As there is a gas shortage, there cannot be a price discovery.”
In his letter, Reddy maintained the Petroleum and Natural Gas Regulatory Board was “inadequate” and “not empo-wered to decide upon the price of the gas at the well-head.”