Availability of cheaper fuel has led to a stand-off between GAIL India Ltd and industry in Madhya Pradesh over non-consumption of natural gas by some units in Pithampur and Dewas.
While the industry is saying that a steady hike in natural gas prices has made the fuel unviable, GAIL is adamant that the companies honour a gas supply agreement (GSA) that stipulates that the company will have to pay for a minimum amount of gas every month.
The gas prices are fixed on the basis of spot LNG prices and vary accordingly.
The long-term agreements of up to 25 years were signed in the period between 2004-2006 when the gas prices were ruling at around Rs 14 per SCM (standard cubic meter) while the prices now are about Rs 37 per SCM.
With companies refusing to lift the gas, GAIL has threatened to invoke the LCs (letters of credit) against non-payment of dues.
“The problem is that the agreements that were signed are unilateral and have not exit clause. Now, when the gas prices are ruling high the companies should have the choice to use cheaper fuel. We have decided to challenge the agreement itself in the courts,” Pithampur Audyogik Sangathan president Gautam Kothari said.
“Some companies have already approached the Madhya Pradesh High Court. The matter is before the court and further proceedings will take place on June 29,” advocate B M Maheshwari who is representing Pithampur-based Porwal Auto Components Ltd said.
Sources say that fall in prices of crude oil has made furnace oil cheaper and the industry also has other options available including pet coke and bio gas.
GAIL India Bhopal branch manager Manish Kumar refused to comment. However, another GAIL India official requesting anonymity said in 2006 GAIL had faced criticism for refusing to sign agreements with some companies due to lack of availability of gas.
“At that time, the gas prices were low. Anyway, the gas supply agreement has a clause that states that any disputes will be resolved through arbitration,” he said.
GAIL has installed a 135-km pipeline from Jagoti to Pithampur via Indore at an estimated cost of about `200 crore to supply natural gas for domestic and industrial use.
2004-06: 11 Companies sign agreement with GAIL
2007-08: Gas supply begins to Pithampur, Dewas
2012: Companies stop consuming gas due to steep prices
January 2015: GAIL issues notices to companies for payment