Resolving the issue of fuel supply guarantee to upcoming gas-based power projects, the petroleum ministry has asked state-run GAIL India to extend 'comfort letters' assuring gas supplies so that developers can raise finances.
According to the new dispensation, GAIL would assure gas supplies when the projects become operational, but the price would be the prevalent market rates, top sources said.
Some developers had said they could not begin work on projects in absence of a bankable gas supply contract and the new arrangement would help them get finances from banks and financial institutions. Upon completion of power plants, the government will allocate fuel to them from domestic fields like those of Reliance Industries' eastern offshore KG-D6. In case domestic gas was not available, GAIL would import liquefied natural gas (LNG) and supply it to them at market rates.
“We want to ensure that power projects are not stranded for want of gas supply contracts. Once they are built, supplies would be ensured either from domestic fields or by way of imports,” a source said.
The developer would not suffer any financial loss in case it gets imported LNG as the entire fuel cost would be passed through electricity regulations. The term market price was inserted in the comfort letters accommodate both domestic as well as imported-LNG rates.
“The government's Gas Utilisation Policy (GUP) will not be restricted to allocating fuel from KG-D6 alone. It will also extend to gas produced from other fields like those of Oil and Natural Gas Corp (ONGC).”
GUP has given urea-based fertiliser plants and power projects top priority in allocation of gas from KG-D6 and the same was likely to continue with other fields as well.
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Power plants tariff is determined by Central Electricity Regulatory Commission According to the regulation for fixing the tariff under the Electricity Act 2003, the fuel cost (price of gas) is a pass-through to beneficiary states/Union Territories, who in turn realise this from consumers. "The power companies will in no case suffer any loss and the new dispensation would ensure their projects are on ground,” the source added.
Meanwhile, GAIL today declared a 20 per cent (Rs 2 per share) interim dividend for the current financial year.
"The board of directors of the company in a meeting today approved the payment of interim dividend to the shareholders of the company," a GAIL press statement said here.
The company has fixed December 29 as the “record date” for the purpose of determining the eligibility of the members of the company for the interim dividend. GAIL said it had paid a total dividend at the rate of 70 per cent on the enhanced paid-up share capital of the company for 2008-09.