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MAY 14 2012

Prioritising gas supplies

  • Economic Times, ET Bureau / Hyderabad
  • Created: Mon 14th MAY 2012

Gas utilisation policy should accord top priority to power companies

The government needs to tweak its gas utilisation policy to accord top priority to the power sector in allocation of domestic gas given its significance in the overall economic growth. Besides, it should also be kept in mind that there is no international market for electricity on which we can fall back in times of domestic shortage.

As of now, fertilisers get top priority, followed by the city gas distribution sector. Power sector, the biggest consumer of gas in India, comes third on the priority list for gas allocation despite its critical role in the national economy.

Significantly, the parliamentary standing committee on energy has also pushed for a policy change to accord top priority to the power sector in gas allocation. The House panel’s suggestion comes at a time when the power sector is facing a huge shortage of gas. Over 8,000 MW capacity is facing the threat of getting stranded due to non-availability of gas, according to the Association of Power Producers (APP), a body of private power companies.

The retail sale of fertilisers is subsidised, with the central government bearing the burden. That is the reason the fertiliser sector's top priority in the government’s gas allocation policy. The city gas distribution project is considered necessary to keep vehicular pollution in check in cities. However, gas price is not an issue for the sector and it can easily absorb imported LNG.

While no one can dispute the merit of supplying subsidised fertilisers to farmers given the significance of food security to the country, it should nevertheless be kept in mind that fertilisers can always be imported to meet the shortfall in domestic production unlike electricity whose deficit cannot be met through free trade.

It is true that India imports electricity from Bhutan. In future, it can also import electricity from other neighbouring countries like Nepal. However, it should be understood that this is not import of electricity from the free market. Rather, Indian companies have invested huge money in power plants in Bhutan and in return, they can export to India surplus power, which is dwindling day by day.

Besides, there is a direct correlation between the power sector's growth and GDP growth. If India wants to grow at 8-10% annually, the power sector must grow at a matching pace. A slowdown in the power sector will definitely drag down the overall economic growth.

It is true that the central government bears fertiliser subsidy and that it has every right to rationalise the input cost for the industry so that it subsidy burden does not become far too high. But at the same time, it should also be remembered that state governments subsidise electricity sale to farmers. Most states are unable to fully compensate their discoms for the sale of subsidised power to the agriculture sector. Nor do they allow discoms to hike tariff. As a result, the discoms are facing the threat of financial collapse. Power discoms’ combined losses are estimated to have piled up to R2 lakh crore, according to Crisil, a rating agency.

So, if the Centre wants to keep the cost of fertiliser production low by diverting cheaper gas to urea manufacturing units, power plants will have to run either on imported LNG or liquid fuels, both remain prohibitively costly. That will in turn increase discoms’ power purchase cost. But will the government change its gas utilisation policy?


Nepal Bhutan Gas Liquefied natural gas Power

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