Rs 11,000-cr payout plan to subsidise cost of gas-based power

Despite buying about 3.5 mmscmd of liquefied natural gas, several plants are stranded for want of fuel

With gas supplies to power plants drying up, the Power Ministry has moved the Cabinet Committee on Economic Affairs (CCEA) proposing about Rs 11,000 crore payout to subsidise costlier power arising from rising gas rates.

The Ministry has moved a draft note for consideration of the CCEA proposing averaging of the price of cheaper domestic gas with costlier imported liquid gas or LNG to have a uniform rate for all gas-based electricity generation stations.

Even after such averaging, the cost of generation would be close to Rs 10 and the Ministry to pass on to consumers only Rs 5.50 per unit and the rest being subsidised by the government by way of direct cash payout, official sources said.

With supplies from Reliance Industries' eastern offshore KG-D6 fields drying up, power plants presently get just 17.25 million standard cubic metres per day of gas from domestic fields as against an allocation of 71.29 mmscmd.

Despite buying about 3.5 mmscmd of liquefied natural gas (LNG), several plants are stranded for want of fuel.

Sources said the Power Ministry wants the pooling or averaging of the price of cheaper domestic gas and costlier imported liquefied natural gas (LNG) prices to start from this fiscal itself. The averaging will give a fuel rate of USD 11.43 per million British thermal unit, leading to cost of electricity generation of Rs 10.47 per unit.

The Ministry says such a high cost of electricity cannot be absorbed by consumers and so the government should subsidise any cost over and above Rs 5.50 per unit.

It worked out a subsidy payout of Rs 2,498 crore for the remaining four months of current fiscal.

Using a similar pooling principal, the Ministry indicated a subsidy outgo of Rs 8,646 crore next fiscal and Rs 10,849 crore in 2015-16.

By pooling of domestically available gas and imported LNG, gradually all the gas-based power plants can be operated thus preventing them from becoming stranded uneconomic assets unable to service their debt, the Ministry argued.

The Power Ministry had last year rejected pooling of gas prices as it would have meant older plants of state-owned firms paying higher price for the fuel just to make feedstock affordable to newer units that are mostly owned by private sector.

But at the request of Association of Power Producers - a body of private power producers, it is now proposing to CCEA to consider averaging the price of cheaper domestic gas with costlier imported liquid gas or LNG.