Asks the Power Ministry to work on gas price pooling and pass on the tariff to discoms or consumers

A big question mark hangs over the future of the nearly 26,000 MW of existing and upcoming gas-based power projects that face virtual shutdown as the Finance Ministry has rejected the Power Ministry’s proposal for nearly Rs.25,000 crore of subsidy cushion and instead asked it to work on gas price pooling and pass on the tariff to distribution companies (discoms) or consumers.

The Finance Ministry’s move comes at a time when the domestic gas price is set to double from April 2014.

The Power Ministry had sought the subsidy on grounds that the gas-based capacity would come to a standstill as it would become unviable to operate with gas costing around $10 million metric British thermal unit (mmBtu) without passing on the massive hike in tariffs to the discoms or consumers. “We had proposed subsidising the high cost of imported RLNG (re-gasified liquefied natural gas) and domestic gas price hike in the offing through pooling but the Finance Ministry turned it down,’’ according to Power Secretary P. K. Sinha.

The Power Ministry has submitted that gas pooling mechanism with an acceptable tariff of Rs.5.50 per unit in 2013-14, Rs.7 in 2014-15 and Rs.7.50 in 2015-16 would require the government to provide a subsidy of Rs.2,498 crore, Rs.10,992 crore and Rs.10,849 crore respectively.

But after the rejection of its proposal, the Power Ministry is toying with the idea of asking the states to bear the subsidy burden of Rs.25,000 crore between now and till 2015-16 to keep power tariffs low from power projects which will use the mix of domestic gas and RLNG. “The problem is that the upcoming gas projects do not have power purchase agreements (PPAs) in place and will have to access gas at $10 mmBtu. On one hand, the government is giving the financial restructuring package to discoms and on the other, it is putting huge burden on them. Power plants will not be able to bear the gas price burden of more than $5 mmBtu,’’ Associated Power Producers (APP) Director-General Ashok Khurana said.

The Power Ministry has argued that subsidy is required to provide respite to about 18,714 MW of existing and around 8,000 MW of upcoming new capacities being operated or constructed by public and private sector companies. In the absence of proper supply of domestic gas, while existing gas-based stations are running at an average plant load factor of 27.8 per cent, a large number of private sector projects stand completely without fuel supply.

Reworking on the proposal, the Power Ministry feels that States should help such units by providing subsidy to keep tariffs low at around Rs.5-6 /kWh, a proposal unlikely to find support among the States which are already facing severe financial crunch.