Limit subsidy for power plants to APM gas usage: Power ministry

The power ministry has proposed that planned subsidy for gas-based power plants be restricted to administered price mechanism (APM) gas.

This means if a power plant opts for other sources, such as non-APM gas and imported R-LNG, along with APM gas, the monetary benefits to the discom buying power would be restricted to the extent of its purchase of APM gas-based power.

The burden of expensive power would either have to be borne by the discoms or generators getting to sell it in the open market. The power ministry feels this proposal, which would curb subsidy, will be accepted by the finance ministry.

This would mean that nearly a fifth of generation or close to 600 million units being produced from power plants largely based on APM gas will be kept out from the subsidy regime.

These plants are already operating at low plant load factor of 44%.

?The idea is to keep subsidy dole under check so that it becomes more palatable for the finance ministry while at the same time giving the financially stressed discoms an option to keep electricity tariff low for its customers,? said a power ministry official.

The finance ministry had earlier rejected a power ministry proposal to provide subsidy to the tune of Rs 25,000 crore for ailing gas-based plants that were left without fuel or were operating at lower plant load factor (PLF) with limited gas supplies. In its earlier proposal, the power ministry had sought subsidy for both existing, new and upcoming gas-based power projects.

Under the power ministry?s revised proposal for the Cabinet, if electricity generated from four gas-based projects of NTPC ? at Faridabad, Anta, Auraiya and Dadri ? is used, then discoms will get subsidy for only close to 550 million units, while the remaining generation of 70 million units of electricity will not get any financial support from the Centre.

Similarly, for state sector gas-based projects (running largely on APM gas) generation of close to 200 million units out of a total generation of 1,150 million units will have to be priced differently as it will not get any subsidy support.

Even private sector power projects will not get subsidy for close to 100 million units of their total current generation of 835 million units.

The power ministry proposal would thus pose challenge even for all existing gas-based capacity that are largely running on APM gas.

These units operating on an average PLF of just about 44% PLF and need to scale up generation to prevent extra spending towards fixed cost.

But increased generation would mean dependence on non-AMP gas and RLNG, where no subsidy would be available. Electricity price is expected to go up from existing R3.3 to R3.80 a unit to between R6 and R7 per unit once gas price increase from present $ 4.2 per mmBtu to $ 8 per mmBtu from April.

Tariff assessed by the power ministry for RLNG based gas stations is in the range of R10-12 per unit. ?As the subsidy has been worked out only for two years – 2014-15 and 2015-16 – where power tariff from these gas-based units has to be kept at low levels of R5-5.50 a unit even after doubling of domestic gas prices, states would not be in a position to pool the financial dole even with non-APM, RLNG-based power capacity,? said the official.

In a draft Cabinet note moved by the power ministry, it has proposed that Centre would provide subsidy of about R5,700 crore for next two financial years only for 10,382 MW of existing gas-based capacity running on administered price mechanism (APM) gas.

This has been proposed so that electricity tariff from these plants are maintained at R5-5.50 /kWhr even after domestic gas price is doubled from present $ 4.2 per mmBtu to around $ 8.4 per mmBtu from April 2014.