The Hindu Business Line : ONGC threatens to cut off gas supply to Gail

OIL and Natural Gas Corporation (ONGC) has served a notice for termination of supplies to the Gail India Ltd and has asked the gas transporter to sign a Gas Sales Agreement (GSA) with take-or-pay commitments. ONGC currently has only a memorandum of understanding with Gail for supply of gas.

ONGC has also made a contingency plan to sell gas directly to consumers if Gail fails to sign the modified agreement.

According to ONGC officials, the company issued the unilateral notice on May 5, as Gail did not stop gas supplies to seven State-owned companies in Gujarat, including Iffco, GSFC, GNFC and the Gujarat Electricity Board, which owe Rs 8,051 crore to ONGC.

The outstanding payment pertains to the period 1982 to 1987 when the gas marketing functions were directly handled by ONGC.

Besides signing a GSA with minimum quantity commitment, ONGC also wants Gail to pay for LPG, ethane/propane that it extracts from its natural gas. Gail pays ONGC a producer price of Rs 2,150 per thousand cubic metres, which ONGC says is only the price for methane (C1) in natural gas.

ONGC sells around 65 million standard cubic metre per day (mmscmd) of natural gas, about 80 per cent of the country's production, to Gail.

According to Gail, the provisions of the MoU empower the Petroleum Ministry to decide on the fate of supplies. In an official release, the gas transporter has said, " ... Gail has sought directions from the Ministry and has assured to extend all possible support to ONGC, as directed by the Ministry of Petroleum and Natural Gas."

According to Gail, ONGC has referred the disputes with the PSUs of the Government of Gujarat to the Ministry of Petroleum and Natural Gas for settlement and a final decision is awaited. "However, pending resolution of the issue at the level of the Ministry, ONGC decided to seek recourse through its MoU with Gail by requesting for the discontinuation of gas supplies to these seven companies. Since sensitive projects of national importance such as the Heavy Water Project were involved, Gail did not consider it advisable to comply in the absence of proper dialogue between the Ministry of Petroleum & Natural Gas and the department concerned in the Government of India/ State Government."

The press statement from Gail further states, "We believe that the termination notice served by ONGC is not valid and also not in line with Government's orders."

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