States may bear subsidy burden to keep gas-based power plants on

Written by Subhash Narayan | New Delhi | Updated: Feb 5 2014, 14:25pm hrs
GasThe commission had also said that merchant sale could be stopped after 2015-16 and entire power from these plants could be sold under the PPA mechanism.
In a sudden change of stand, the power ministry now wants states to bear the subsidy burden of close to Rs 25,000 crore between now and FY16 to keep electricity tariffs from projects based on imported RLNG low.

This follows finance ministry's rejection of a proposal moved by the power ministry in a draft cabinet note, seeking Centre's help to foot the subsidy bill for a three-year period.

Subsidy is required to provide respite to about 18,714 MW of existing gas-based capacities and 7,815 MW of upcoming new capacities being operated/constructed by a host of public and private sector companies. In the absence of domestic gas, while existing gas-based stations are running at an average plant load factor of 27.8%, Vatwa project of Torrent, Rithala project of NDPL, Dhuvaran and Utaran projects of GSECL, Sugen project of Torrent, Kakinada project of GMR Essar's captive power project in Gujarat are completely deprived of fuel as all supplies from KG-D 6 have stopped.

Sources said the power ministry has proposed that states should help these units by providing subsidy so that electricity tariff could be kept at manageable levels of Rs 5-6 /kWh instead of a unsustainable level of Rs 10-11/kWH (using pooled pricing like mix of domestic gas and RLNG) that would make it difficult for power-generating companies to find buyers.

As most of these plants would have to operate largely on RLNG, which is expected to cost anywhere around $ 20 per million British thermal units (mmBtu), eventual cost of electricity will work out to be very high.

The power ministry, sources said, may offer various options to keep the subsidy bill for the states low. This could be by way of an arrangement being worked out with power finance institutions such as PFC and REC to provide concessional short term loan to the generating stations to keep their operating cost low and also extend the commercial operation date of these projects by another year. Moreover, the state would be required to subsidise only assured quantity of power it buys for distribution within the state, the balance power would be free or generators to be sold in the merchant market.

The Planning Commission had earlier suggested the subsidy burden could be reduced substantially if gas-based plants are allowed to sell 50% of their power in the open market while they meet the supply obligation under PPAs for the remaining 50% capacity.

The commission had also said that merchant sale could be stopped after 2015-16 and entire power from these plants could be sold under the PPA mechanism.

While the proposal being worked by power ministry is pragmatic, it may met opposition from states as they are already reeling under high debt burden of its discoms, said an official source.

Out of a total power generation capacity of over 2,34,000 MW in the country, gas-based capacity is just about 8% with installed capacity of 18, 714 MW. Even this capacity is running at average PLF of just about 28% on APM, PMT and non-APM gas as supplies from KG-D 6 has completely stopped.

Newly commissioned 1,334.5 MW of gas capacity is completely idle as they are substantially based on KG-D 6 gas. Moreover, another 8,000 MW of projects that are nearing commissioning and were promised domestic gas allocation are clueless about fuel linkage.

The government wants to revive these power stations by allowing them to run plants on a mix of available domestic gas and expensive RLNG to increase the generation and get paid for the additional cost through a remunerative tariff and subsidy mechanism. This could benefit existing and proposed gas-based power plants of firms such as GMR, GVK, Lanco, Torrent, Reliance Power and state-run NTPC.