Power Ministry mulls Rs 6,000 cr subsidy to discoms for cheap power

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The subsidy will enable the discoms to sell power at Rs 5 per unit by getting the government subsidy for two years. Reuters The subsidy will enable the discoms to sell power at Rs 5 per unit by getting the government subsidy for two years. Reuters
SummaryPower Ministry has initiated the process of sourcing gas for fuel-starved power projects.

Power Ministry has initiated the process of sourcing gas for fuel-starved power projects and has proposed Rs 6,000 crore subsidy for distribution companies so that they can sell electricity at lower rates to consumers.

However, power plants running on gas from Reliance Industries' KG-D6 basin will have to wait for the fuel as any additional gas from those fields has been reserved for the beleaguered Dabhol project in Maharashtra till March 2015.

According to sources, the Ministry of Power has circulated a Cabinet note on the issue of gas availability to the fuel-starved power projects.

The note, which was circulated by the ministry last week, states that the Central government will give subsidy to the electricity distribution companies for buying expensive power and selling it at a discount.

This support will be for the APM (administered pricing mechanism) gas-based plants which will be hit by price increase from April, 2014.

The subsidy will enable the discoms to sell power at Rs 5 per unit by getting the government subsidy for two years.

"The subsidy cost to the government in FY'15 will be Rs 3,500 crore, and Rs 2,500 crore in FY'16," a Power Ministry official said, adding that the subsidies will be given to the state-owned discoms.

The Power Ministry has proposed that any additional gas after meeting the requirement of the urea plants will be given to Ratnagiri Gas and Power Private Ltd. RGPPL was set up to takeover and revive the assets of Dabhol Power Company Project.

State-owned NTPC and GAIL hold 32.86 per cent each in RGPPL, Maharashtra State Electricity Board has 17.41 per cent holding and the remaining 16.87 per cent is held by the financial institutions.

The official said that other power plants (apart from RGPPL) which are dependent on KG-D6 gas and are right now getting nothing will be able to get natural gas only in FY'16.

"The criteria for natural gas allocation to these power plants will be arrived at after consultation with the Ministry of Petroleum and Natural Gas," the official added.

For the power plants that are ready but have no gas, the Power Ministry has proposed a financial relief package which comes with a rider.

"If they (power projects) are able to import natural gas and tie up consumers then they will get extra loan from Power Finance Corporation as working capital as part of the financial relief package," the official said.

Also as part of the package, these plants will be given

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