The sources said ECC in its meeting on October 23, 2012 while considering the summary submitted by the Ministry of Petroleum & Natural Resources on "allocation of gas to fertiliser plants from dedicated sources" approved, in principle, the long-term plan proposed by the Ministry and constituted a committee comprising the Adviser to the Prime Minster for Petroleum and Natural Resources (Convenor), Minister for Law and Justice, Minister for Information and Broadcasting, Deputy Chairman, Planning Commission and Secretary, Ministry of Water and Power with the following terms of reference:
(i) To develop modalities for legal arrangements for execution of the long-term project; (ii) to determine mechanism for involving private sector in the execution of the project; (iii) to review the long-term gas sales agreements already executed by the gas companies; (iv) to develop the formula for financing the project; and (v) to determine a better cost-effective structure including gas from other sources and import.
The first meeting of the committee was held on November 13, 2012. The meeting discussed the structure proposed in the summary in the light of the suggestions submitted by the four fertiliser producers. After extensive deliberations it transpired that there were more efficient methods available to meet the needs of industry for transmission of gas to the fertiliser plants than the one afforded by the structure in the summary.
In this connection, the two gas utilities (SNGPL and SSGCL) revealed that they would be able to use their main supply line to transmit gas to the dedicated points after some quick investments in looping and enhancement in capacity at different points. The companies will only charge tolling fee for this service, which will be determined by Ogra as per the third party access rules framed for the purpose.
A number of concerns were expressed about the efficacy of this arrangement, mostly relating to the security of gas supplies and assurances against diversion to other uses. Appropriate guarantees and penalties would also be provided in the Gas Sales Agreements (GSAs) and Gas Transmission Agreements (GTAs) with the consortium of fertiliser plants.
The following distinct advantages of the new model are note worthy: (i) huge investment in a new pipeline, which will have no other advantages in the foreseeable future would be avoided; (ii) right of way issues, a perennial problem that delays such projects, will also be avoided; (iii) the use of GIDC is no longer required; and (iv) significant reduction in the timeline to implement that project from nearly two years to about six (6) months from the time necessary agreements are finalised.
With the new structure the following position is submitted with respect to the TOR for committee. TOR and the new model 1-To develop modalities for legal arrangements for execution of the long-term project...the Consortium of Fertiliser plants shall execute formal GSAs with respective gas producers on take or pay and supply or pay basis.
The title of gas shall pass on to the Consortium at the agreed delivery point. The consortium shall enter into gas transportation agreement with two utility companies for the transmission of this gas through their existing main-lines from the agreed point of entry to the designated point of delivery under the third party access rules, 2011 and pay a tolling fee as determined by the OGRA under the said rules.
2- To determine mechanism for involving private sector in the execution of the project. The investment required for augmenting the capacity of the mainline will be borne by the utility companies concerned as they will be entitled to rate of return on their investment as well as charge tolling fee from the consortium. However, the investment required on the purification (MEA) facilities, if required and the connections from the field gates to the entry point of the main gas pipeline will be borne by the consortium of fertiliser plants.
3- To review the long-term GSAs already executed by the gas companies... Several long-term agreements for supplying gas through the mainline are in place but the said arrangements are based on SNGPL/ SSGCL own gas. However, they are still relevant from the point of security of supplies.
4- To develop the formula for financing the project... Already covered under TOR No ii.
5- To determine a better cost effective structure including gas from other sources and import.... The proposed model will be a pioneer arrangement which will pave the way for many such arrangements including flow of imported gas. The capacity of the mainline will be augmented as and when required in an optimal manner for transmission of additional gas from the local as well as imported sources.
Petroleum Ministry argued that as already approved by the ECC, in principle, the gas reserves from selected fields may now be formally allocated to the consortium of the fertiliser plants using standard GSA's, on take or pay and supply or pay basis till the life of the fields with supporting dedication of gas reserves. The price of gas for each producer shall be fixed under the applicable petroleum policies/the relevant gas pricing arrangements with due allowance for the purification (MEA) of gas by fertiliser producers, if required.