HC seeks Centre's reply to Welspun, Ispat petition on gas

The Bombay High Court on Thursday directed Union Government to file its response to the petition filed by Welspun Maxsteel and Ispat Industries, major producers of sponge iron, challenging drastic reduction in gas allocation.

The two companies are fearing closure of their operations because of the cuts in the supply of natural gas from KG basin. They have moved the court challenging oil ministry's order reserving the entire KG basin output for the "core sector".

Today's direction was given by the division bench of Chief Justice Mohit Shah and Justice Girish Godbole.

The court had earlier asked the Ministry of Petroleum and Natural Gas to hear the petitioners as well as others who had sought to intervene in the matter, and take a decision afresh. Accordingly, the ministry gave them a fresh hearing last month, but upheld the earlier decision.

So the petitioners are back in the court, challenging the new order of the Ministry, on which the division bench today sought the Ministry's reply by June 14. Next hearing is on June 16.

The petitioners argue that in the event of plant-closure or reduction in production of sponge iron, even the exchequer will suffer a loss of more than Rs 1,000 crore.

If targeted steel production was not achieved, there would be a shortage and the country will have to import steel, as against the present net exporter status, they argue.

RIL, which operates KG-D6 gas-fields, has seen a drop in the output from 61.5 million standard cubic meter per day (mmscmd) in March 2010 to less then 50 mmscmd now.

Reliance had been effecting a pro-rata cut in supplies to all its customers; but the oil ministry now wants the gas to go first to fertiliser, power, LPG and city gas companies ("core sector"), leaving nothing for others, according to the petition.

The petitioners contend that there are only three manufacturers of sponge iron in India. If the Ministry's decision is implemented, they would have to stop production.

The petition says that as per 2005 decisionof an empowered group of ministers, 40 mmscmd of gas from KG basin was to be reserved for the core sector and the balance for the steel and others. It was also decided that any variation in allocation will be effected in consultation with the concerned ministries and stakeholders.

But following the fall in gas production December 2010 onwards, on April 21, 2011, the Ministry of Natural Gas issued a directive to RIL that all the 50 mmscmd should be reserved for the core sectors.

The petitioners say that after reserving 40 mmscmd for the core sector, 10 mmscmd can be made available for others, and reserving the entire gas production for the core sector was totally unwarranted.