GAIL gets tough on customers in Gujarat

Vol 13, PW 22 (22 Apr 10) Midstream & Downstream

GAIL is cracking down on gas customers in Gujarat who have failed to provide binding Letters of Credit guaranteeing payment that conform to its own approved format.

PETROWATCH learns GAIL has threatened to disconnect gas supplies to most of its 113 industrial customers in the state, including big names Reliance, Essar and Torrent, if they do not correct their LCs soon. In strongly worded notices sent in the last week of March (last month), GAIL gave these customers an ultimatum to "provide the LC (Letter of Credit) in the GAIL board approved format within 15 days" or "gas supplies will be disconnected with effect from 6am on April 13.

" Only state-owned companies, strategic units like the atomic energy department’s heavy water plant at Hazira, cooperatives like Amul Dairy, and city gas retailers have been spared. GAIL has been pleading with customers to correct their LCs and bring them in line with its approved LC format for some time.

Faulty LCs submitted by companies meant GAIL was having trouble recovering payment from banks that issued the LCs. Frustrated GAIL even approached the Reserve Bank of India (India's central bank) asking it to intercede and help it recover its money from these banks.

But the RBI refused to help, telling GAIL to approach the banks directly. GAIL then had to approach the individual ombudsmen appointed by the respective banks to collect its payments.

Still, GAIL's latest move cracking down directly on customers has had the desired effect, as they scramble to convert their LCs to match GAIL’s approved format. Several small ceramics and chemicals factories like Sapna Chemicals, Supreme Glaze and Mahek Glaze in central and north Gujarat had supplies disconnected until they submitted the corrected LCs.

In addition to threatening customers with disconnection, GAIL is also aggressively invoking LCs and clearing past dues. One example is Haldyn Glass, a glass vial and bottle manufacturer located at Padra village near Vadodara.

“GAIL went ahead and cleared Haldyn's entire outstanding Rs33lakhs ($73,122) debt by invoking the LC,” we hear.