May 30, 2020
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Still Short Of Gas

Reliance's Rs 3,600-crore gas cracker project is yet to take off

Still Short Of Gas

WHEN Union Petroleum Minister T.R. Baalu announced in Guwahati last fortnight that the Centre could provide enough natural gas for the production of only 2 lakh tonnes of ethylene to the Assam gas cracker project, he added to the long list of problems that have been plaguing the project since day one. In fact, the project looks all set to flare up into a messy controversy that the United Front Government can ill afford.

The Rs 3,600-crore project, co-promoted by Reliance Industries and the Assam Industrial Development Corporation (AIDC), was envisaged in 1984 and formalised through a letter of intent (LOI) in 1991. When the then prime minister, P.V. Narasimha Rao, laid the foundation stone of the mega project at Tengakhat in upper Assam in February 1995, he announced that all pending issues would be sorted out immediately so actual work on the project could begin.

Yet, exactly two years later, last month, Assam Chief Minister Prafulla Kumar Mahanta wrote to Prime Minister Deve Gowda: "Non-implementation of the project has agitated the people of Assam." The project is important for reasons greater than just employment opportunities for the Northeast. So Mahanta wrote: "You will appreciate that for a remote and backward place like Assam, it is extremely difficult to convince a big industrial house to set up a project. The importance of the setting up of such a vital project, which may open up the economy of the state for further investment by industrial houses, needs no further emphasis at this stage."

What exactly are the problems? According to Assam Industries Minister Guin Hazarika, three main issues have to be cleared:

  • Assurance on making adequate quantity of gas available from centrally located points in Oil India Ltd (OIL) and ONGC fields for producing three lakh tonnes per annum (TPA) of ethylene;

  • Ownership of the separation plant by the co-promoters to integrate the project;
  • Allocation of gas to meet the power requirements of the complex.

    Now that Baalu has categorically said that enough gas will not be available, the project will depend on naphtha for the rest of its needs. But since naphtha is a costlier feed-stock, the cost structure of the project will stand altered. Says AIDC Managing Director Mrinal Baruah: "If naphtha has to be used, the project's capacity needs to be raised to at least 4 lakh TPA to make it economically viable." But the Centre is unwilling to commit itself on the supply of naphtha. "It's up to the promoters to arrange for their naphtha," says Baalu. However, he has assured the state government that the project would get Cabinet clearance very soon.

    As for the separation plant, both OIL and the Gas Authority of India Ltd (GAIL) have separation plants coming up in the vicinity of the Reliance project, but have turned down Reliance's offer to buy one of the plants at market price. Says a Reliance spokesperson: "Different owners of two vital components of such a big project will mean added costs and complications." But AIDC officials claim that Reliance has now reconciled itself to buying feed-stock from either GAIL or OIL.

    But neither OIL nor GAIL has as yet indicated the price at which it will supply the feedstock. "This," says a Reliance manager, "prevents us from working out the viability of the project." Also, OIL and GAIL are demanding that the promoters pay Rs 70 crore to lay a pipeline for transportation of the oil and gas to a central point. The promoters argue that this is unfair since the oil and gas from the central point will be used by others as well, and hence the cost of the pipeline should be seen as an infrastructural necessity to be borne by public sector oil companies.

    Says Parag Chaliha, Rajya Sabha MP from Assam and member of the consultative committee to the Ministry of Petroleum and Natural Gas: "While the Assam project is embroiled in various issues and intricacies, GAIL's Auraiya and IPCL's Gandhar gas cracker projects have not faced any such problems and are going to be commissioned soon." After a meeting last August, Parliament's Standing Committee on Petroleum and Chemicals wrote: "The committee is distressed to note that the Assam gas cracker project which was a part of the Assam accord (in 1985) is yet to take off." In the meantime, the project cost has escalated from the Rs 500 crore envisaged in 1985 to an estimated Rs 3,600 crore if all pending matters are cleared up in the next couple of months. But that appears rather unlikely.

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