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EGoM to consider re-distribution of natural gas on May 28

EW DELHI: An empowered group of ministers, headed by defence minister AK Antony, will meet on May 28 to consider re-distribution of scarce natural gas, mainly produced from Reliance Industries-operatedKG-D6 block, government officials said.

A separate ministerial panel will meet later to consider new gas pricing formula prescribed by Prime Minister's Economic Advisory Council chairman C Rangarajan, which proposes to nearly double its price from $4.20 per unit, officials with direct knowledge of the matter told ET.

The government is preparing for a new regime for natural gas pricing and distribution with fresh norms for allocating the scarce resource and revised prices that makes the business attractive enough for companies to commit risk capital and boost output.

The government proposes to grant the fuel-starved power sector the same priority as fertiliser plants for supply of depleting domestic gas. Currently, fertiliser plants get the top priority, and consequently the maximum natural gas. The change in pecking order can give the power sector enough fuel to generate 2,200 MW from existing plants, if the proposal is approved by the EGoM.

Gas producers and consumers are keenly waiting for the EGoM's verdict. Producers are concerned that the current price of gas is not adequate to justify investment of tens of thousands of crores in developing new fields in challenging terrain, while customers want supplies to rise sharply, but they are demanding cheap fuel. Output from Reliance's D6 block has fallen sharply, leaving several power plants idle or underutilised. Industrial customers are forced to buy liquefied natural gas (LNG) which costs 3-4 times Reliance's state-approved price of $4.2 per unit.

Reliance-operated D6 blocks gas supply to the power sector has fallen to zero after output plummeted to about 15-16 mmscmd. The power ministry recently issued an advisory to power developers not to plan any gas-based power plants till 2015-16 due to paucity of gas.

Government officials involved with the EGoM also considered allocating scarce gas to only efficient power plants to maximise its value, but the proposal was shot down by the power ministry because this would exclude state-run power units, which are very old and often inefficient, officials said. "Normally 1 mmscmd produces 220 MW, this can be increased up to 250 MW due to efficiency of plants," one official said.