Oil and Natural Gas Corporation, India's largest oil and gas producer, has issued a notice to terminate gas supplies to GAIL (India) Ltd alleging violations of agreement by the state-run gas transporter.

ONGC sells some 65 million standard cubic metre per day of natural gas, about 80 per cent of the country's production, to GAIL which it has now threatened to stop unless GAIL signs a proper Gas Sales Agreement with take or pay commitments.

Sources said ONGC issued the notice as GAIL did not stop gas supplies to seven state-owned companies in Gujarat including IFFCO, GSFC, GNFC and Gujarat Electricity Board, who owe ONGC Rs 8051 crore (Rs 80.51 billion) in arrears.

The Rs 8051 crore outstanding against the 7 firms, that includes a principal amount of Rs 494.95 crore (Rs 4.94 billion), pertains to the period 1982 to 1987 when the gas marketing functions were directly handled by ONGC.

"We had repeatedly requested GAIL to discontinue supply to the defaulting public sector companies. Regrettably, there has been no response from GAIL. Therefore the MoU between ONGC and GAIL has been unilaterally violated by GAIL, and notice is hereby served by ONGC for termination of this MoU," ONGC wrote to GAIL.