Tue, Aug 27 2013
New Delhi: The power ministry is likely to approach the cabinet next month on a proposal to supplement domestic natural gas, of which there isn't enough for power generators, with imported liquefied natural gas (LNG), effectively pooling the prices of the two to ensure that the companies don't end up paying too much.
The move, which has been spoken of in passing for several months now, is an attempt aimed at tackling the severe shortage of gas in the country that has resulted in several power plants remaining idle.
The power ministry will move an inter-ministerial note for consultation shortly, power secretary Pradeep Kumar Sinha said in an interview. The note is likely to be put up before the Union cabinet for approval next month.
"There is a problem of shortage of gas. We are working on a proposal of how to improve the PLF (plant load factor) of existing plants by adding some LNG into the system. And also there are some plants which are ready or getting ready, for that also gas has to be given," Sinha said.
He added that this was a temporary measure to get through 2014-15 and 2015-16. By 2016-17, "domestic availability (of gas) will improve", Sinha said.
In June, the government raised the price at which gas will be sold effective from 1 April 2014 with the promise of a compensatory mechanism for the power sector. The higher price of around $6.83 per million British thermal units (mmBtu), is a significant increase from the current domestic prices that range between $3.5 and $5.73 per mmBtu.
The ministry had earlier moved a note for gas pooling to the cabinet committee on investment.
"While an earlier draft note was meant for the consideration of the CCI (cabinet committee on investment), this will be a revised note for gas pooling with new information given the promise of a compensatory mechanism and the new price of gas. It will be in the new light. How much LNG one would take for reasonable tariff has to be worked out," said a senior power ministry official, who spoke on condition of anonymity.
India imported 13.43 million tonnes of LNG in 2012-13. The government has already provided a customs duty waiver for gas imports for power projects, and the latest proposal comes at a time when there is a growing interest in the Indian LNG market among global firms.
Sinha hinted that the government would effect some kind of compensatory mechanism to ensure the costs of power producers and, consequently, power tariffs, don't rise too much.
"On the other hand, we are examining as to how to keep the tariff (competitive), because if you inject LNG into the system, tariff goes up. So, we are examining how to keep the tariff at reasonable levels. But as I said, we are still working on it," Sinha added.
The government's move comes even as 39 gas-fuelled power projects with an aggregate capacity of 16,374 megawatts (MW) are operating at a PLF of 23.7%. And another 13 gas-based power projects, with a capacity of 7,815MW that are under construction or ready for commissioning, have been stranded in the absence of gas allocation. While the power projects require 102.61 million standard cubic metres per day (mscmd) of gas, the supply is a measly 27.7 mscmd.
At the time of the gas price increase decision in June, finance minister P. Chidambaram said, "Power has to be produced at an affordable price, fertilizer has to be produced at affordable prices. Those issues will be addressed," adding prices could be "tweaked" for these sectors.
The government has been trying to address the issue and on Friday decided that any additional domestic gas available in the next three years will be allocated to the power sector. The gas would be allocated by capping the current domestic gas supply to fertilizer firms.
The country has a power generation capacity of 225,793.1MW, of which 9.02%, or 20,359.85MW, is fuelled by gas. Gas-fuelled power plants have been operating below capacity because of declining production from Reliance Industries Ltd's D6 block in the Krishna-Godavari basin.
"Any pooling mechanism in the gas sector will be meaningful for stranded gas power projects if the entire additional LNG import is pooled with (a) significant amount of domestic allocation to (the) power sector," said Debasish Mishra, a senior director at Deloitte Touche Tohmatsu India Pvt. Ltd, an audit and consulting firm. Speaking to reporters on Friday, power minister Jyotiraditya Scindia articulated a five-step strategy to address the problems of gas-based power generators: equal priority (with fertilizer companies) for gas allocation; more domestic gas; pooling (and only after the first two are done); an import duty waiver for gas imports; and finalizing a peaking power policy. The last refers to a policy for gas that will encourage power distribution firms to invite bids from generation utilities for meeting power shortages during peak consumption hours.
At the time of the government's decision to increase the gas price on the recommendation of a panel headed by C. Rangarajan, head of the Prime Minister's economic advisory council, the power ministry had said that a base price beyond $5 per mmBtu would be unviable and had urged "certain dispensation for a critical sector such as power should be evaluated to enable this sector to continue to offtake natural gas for power generation at a viable level".
"We have already done it on the coal front in parts. Similarly, we are trying to attempt it on the gas front," Sinha said.
The government in June served up a bailout plan for coal-fuelled power projects by allowing power generation utilities to import coal on their own or through state-owned Coal India Ltd, and pass on the extra cost as tariff increases to help restart stalled power projects.
