Power ministrys gas allocation plan for plants to leave fertiliser sector high and dry

Written by Subhash Narayan | Prashant Mukherjee | New Delhi | Updated: May 16 2013, 07:38am hrs
In a move that is sure to face stiff opposition from the fertiliser sector, the power ministry has finalised a proposal that will allow it to corner a lion's share of the domestic gas for running stranded power projects, leaving fetiliser units to meet their fuel needs largely through expensive re-gassified liquified natural gas imports.

In a proposal for the Cabinet Committee on Investment (CCI), the ministry has justified priority gas allocation for the power plants as it would result in additional generation of 67 billion units of electricity, resulting in tariff realisation of about R37,000 crore while fertiliser subsidy burden of the government would only increase by R10,000 crore.

Higher power generation will also have significant multiplier effect on the overall economy, it added.

In the note for CCI, the power ministry has said that gas availability for the power sector could be increased by pooling resources within the fertiliser and power sectors after diverting 6 mmscmd of gas from the non-core sectors such as sponge iron and steel sectors and allocating 10 mmscmd of additional finds (5 mmscmd from ONGC and 5 mmscmd from GSPC) to the pool with present domestic gas prices.

The total availability of gas from domestic sources at present is around 20 mmscmd for fertiliser sector and 7 mmscmd for power sector.

The allocation for power sector from Reliance Industries KG D 6 block has fallen to almost zero as the production from the block has bottomed to 16 mmscmd from peak of 60 mmscmd few years back.

This has put a question mark on about 18,000 MW of gas-based power capacity (excluding 5,783 MW of old central and state sector gas based stations) as they are struggling to operate in the absence of fuel. Bank exposure of about R60,000 crore in these projects risk the chance of becoming NPAs.

The pooling exercise would increase the total availability of gas for power and fertiliser sectors to 43 mmscmd with the requirement of RLNG for the power sector reducing to 46 mmscmd for these 18,000 MW projects to run at 70-75 of plant load factor. It would also result in improving the ratio of domestic gas to RLNG to 48:52 and restrict variable cost of generation to reasonable level of R6.76 per unit, said an official in power ministry.

The power ministry proposal on pooling has also been favoured by member (energy) of Planning Commission B K Chaturvedi, who in a note to The PMO earlier suggested price pooling of domestic gas and RLNG and opined that shortages of domestic gas against demand must be shared by both power and fertiliser sectors equitably.

Chaturvedi's note to the PMO also estimated that additional impact on the fertiliser sector by this exercise would be R10,000 crore, while ensuring additional gas availability under the pooling scheme will result in additional generation, resulting in tariff realization of about R37,000 crore and additional power generation having a significant effect on the overall economy.