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AUG 01 2014

Pooled prices, subsidies to revive gas-based power

  • Economic Times, ET Bureau / Hyderabad
  • Created: Fri 01st AUG 2014

The government is formulating a policy package aimed at infusing life into 26,489 MW of gas-starved power plants. The plan includes partially revisiting the gas pooling proposal, which the UPA government conceptualised but later turned wary about, given the huge subsidy cost it entailed.

As per the new plan, some 10,382 MW of administered price gas-based installed power capacity, running at a very low plant load factor (PLF) for want of the fuel right now, would get pooled gas - at a price higher than the APM gas price - with an assurance that the cost of power from these plants above a threshold of R5.50 per unit will be subsidised.

As for the balance gas-based capacity, sources said, some 7,000 MW based on gas from the Krishna-Godavari Basin and another 1,800 MW or so sans any gas allocation right now could be offered a financial package. Relaxed norms for external commercial borrowings and trade credits, extension of commercial operation date - which would give flexibility in loan repayment - and an additional three years of moratorium and waiver of interests are among the likely components of the package.

In addition, further loan facility would be made available from Power Finance Corporation for these units.

The cost of the proposed subsidy for APM gas-based units and financial incentives would still be much lower than the R56,000 crore estimated to implement comprehensive gas pooling for the entire 26,489 MW capacity. The plan, if implemented, will benefit power plants of NTPC, Essar Power, Lanco, GVK and GMR, among others.

The pooling mechanism for power stations based on APM gas would work as follows: Gas from different sources - domestic and imported RLNG - will be pooled to minimise the impact on each user from the expensive varieties of the fuel.

The weighted average price of the pooled gas would work out to $10.48 per million British thermal units (mmBtu) for FY15 and $10.27 for FY16, and the corresponding figures for cost of generation of power would be R8.25/unit and R8.12/unit. (Even though APM gas (at $4.2/mmBtu) is cheaper than the pooled gas price, the plants are starved of gas due to the scarcity of the fuel). The subsidy from now to FY16 end (to keep the price of power to the consumer at R5.50/unit) is estimated at R5,677 crore, sources said.

"The idea is to implement gas price pooling starting August this year, and up to FY16 end. It needs to be cleared by CCEA (Cabinet Committee on Economic Affairs)," a senior government official working on the proposal told FE.

He added that the proposed package would help salvage capital investments to the tune of R1 lakh crore from becoming non-performing assets. Gas-based power capacity right now is heavily underutilised. While domestic gas production is stagnating, imported LNG is prohibitively costly at $11-14/mmBtu.

In May, against the total gas requirement of nearly 100 million metric standard cubic metres per day (mmscmd) for the power sector, the availability was only 26.43 mmscmd including 1.01 mmscmd of RLNG.


Essar Power Gujarat Ltd Essar Electric Power Development Corporation Limited Power Finance Corporation Finance Gas NTPC Ltd Re-gasified liquified natural gas Central Electricity Authority Cabinet Committee on Economic Affairs Prospecting Licence Liquefied natural gas Essar Essar Steel Essar Oil Ltd. Power

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