The Hindu Business Line : Even as Reliance wins supply contract — GAIL offers to transport gas to NTPC plants

GAIL (India) Ltd has offered to transport natural gas from Reliance Industries Ltd's (RIL) gas fields in the Krishna Godavari (KG) basin to National Thermal Power Corporation (NTPC) proposed 1300 MW-each power plants at Kawas and Gandhar in Gujarat, according to industry sources.

In a recent letter to NTPC, GAIL has said that it was willing to set up the pipeline from Kakinada in Andhra Pradesh, to the project sites, which measures around 1,400 kilometres. The pipeline company has offered to set up the pipeline in a competitive bidding system where it would enjoy a 10 per cent purchase preference as a public sector. This means that if it quotes within 10 per cent of the lowest quote, it will have the right to match the price and walk off with the contract.

GAIL's offer comes in the wake of Reliance winning a contract to supply gas to NTPC's power stations units. The Reliance deal involves transportation of gas through the 1,400 km pipeline, for which it has quoted a tariff of 48 cents per million British thermal units (mmBtu).

In this backdrop, NTPC does not plan to react to GAIL's proposal since it would be contracting gas from Reliance on a delivered basis (at the power plant end). Under the tender terms, it is up to the winning bidder (Reliance) to choose the transporter. It could do it itself or take the services of a third party. In this case, Reliance is choosing to lay the pipeline itself.

GAIL, as a gas transporter, is aggressively looking at bagging the deal since the pipeline offers assured business (supply of gas to NTPC) besides the possibility of evacuating gas from other potential finds in the gas-rich KG basin.

GAIL's offer comes at a time when there is regulatory uncertainty in the gas business. The Petroleum Ministry is in the process of firming up the gas pipeline policy. The debate is on whether the gas pipeline highways (grid) across the country should be set up by GAIL or thrown open to competition. The draft policy places faith in GAIL to undertake the gas grid for most part. The Government is debating on whether or not to give Reliance approval to set up the Kakinada-Bharuch pipeline to supply gas to NTPC's stations.

Interestingly, the recent NTPC bid has rocked the Petroleum Ministry's confidence in the competitiveness of GAIL's gas pipeline tariff.

In the NTPC bid, Reliance has quoted 48 cents to transportation gas for a distance of 1,400 km. In the case of GAIL's trunk pipeline, the Hazira-Bijapur-Jagdishpur (HBJ) pipeline that stretches 1,800 km (including two spur lines), the gas transportation tariff is around 70 cents.

According to top Petroleum Ministry officials, there is a likelihood of review of the HBJ tariff. "The project allowed for a 12 per cent internal rate of return. In today's scenario, the cost of capital is around 7 per cent and GAIL's newer projects financed at 8-9 per cent," a senior official said. It remains to be seen on whether the Government, in its judgment, leave it free to Reliance to set up the pipeline project, or by administrative fiat decrees that all pipeline highways are to be laid by GAIL alone.