With gas-based power plants with a combined capacity of 24,000 MW being hit by a severe crunch in domestic gas supply, the government has decided to lend an element of urgency to the proposal to create a pooling mechanism for local and imported gas. The Prime Minister?s Office has asked the power ministry to prepare a ?comprehensive note? on the availability of gas for power plants from all sources explaining the implications of gas pooling for the economy and all ?individual stakeholders?, a source privy to the matter told FE.

The move is in the wake of the steep decline in production at Reliance?s KG-D6 block, the principal source of gas in the country, to around 20 million metric standard cubic metre per day (mmscmd), instead of rising to the projected level of 80 mmscmd.

Under the price-pooling system, the liquified natural gas ( LNG) ? which is imported at around three-times the cost of domestic gas ? would be pooled with the the latter and the power stations would pay the weighted average price. Currently, 25-30% of India?s gas requirement is met through import of LNG from Qatar, Australia and the US among others, and the landed cost is $12 per million metric British thermal unit (mmbtu) and upwards. The domestic gas price is $4.2 mmbtu and the petroleum ministry has recently moved a Cabinet note to nearly double the price, following the recommendation of the Rangarajan committee.

According to the source, Pulok Chatterjee, principal secretary to the Prime Minister, has asked the power ministry to prepare the note on price pooling for the consideration of the Cabinet Committee on Investments (CCI), which is expected to discuss the issue at a meeting in the last week of April. ?The power ministry would bring a comprehensive note to the CCI on the availability of gas for the power sector from all sources, the current allocation to users, the gas needs of all power plants ( both existing and new), the contractual arrangement in the supply of gas to these plants and the implications of gas pooling for the economy and individual stakeholders,?Chatterjee said at a recent meeting, according to the minutes quoted by the source.

The stalled power plants that would be helped by the move are Reliance Power?s Samalkot, GMR?s Vemagiri, GVK?s Gauthami and Konaseema plants and Lanco?s Kondapalli project in Andhra Pradesh and Dabhol plant in Mahrasthra.

Of course, price pooling in the current context would lead to much higher cost of the fuel. The companies will have to get regulatory approval to pass on the additional fuel cost to the consumers, including state distribution companies.

The discoms, incidentally, are financially stressed and the respective state governments are about to sign a reform-linked debt recast package.

Gas price pooling was originally mooted by the power producers themselves. A delegation of the heads of private power companies, including Anil Ambani (Reliance Power), GM Rao (GMR) and Madhusudan Rao (Lanco), met top policymakers, including petroleum minister Veerappa Moily, recently to press their demand.

It seems that the government has taken initiative to implement a pooling mechanism for gas in view of the progress reported in setting up a similar system for coal.

Coal India (CIL) has committed to meet at least 80% of the coal requirement of power producers. Of this, minimum 65% must come from domestic sources and the balance can be met through imports.

What proportion of imported LNG would be needed to be blended with domestic gas would depend on the latter?s availability. While domestic coal shortage for the power sector is estimated at 15-20%, gas shortage is reckoned to be much bigger at 40-50%. Unless domestic output increases, implementing pooling mechanism could be difficult, given the limited ability of consumers to pay more for power.

?Blending LNG up to 15-20% would be feasible. But beyond that, it could be difficult to implement,? said Deloitte director Shubhranshu Patnaik. Another difficulty is that unlike the coal sector where state-owned CIL has the monopoly, private players have significant presence in gas production. Private producers have opposed the pooling proposal.

Finance minister P Chidambaram said in recent Budget that the pricing policy for natural gas would be reviewed. The power sector is clamouring for being treated at par with fertiliser sector in the gas allocation policy. Currently, the topmost priority is given to the fertiliser sector followed by LPG-extraction units. Gas-based power plants are placed third in the priority list.

Stepping on the gas

* PMO asks power min to prepare ?comprehensive note? on the availability of gas for power plants from all sources

* Move in wake of steep decline in KG-D6 block output to 20 mmscmd, instead of rising to the projected 80 mmscmd

* Gas-based power plants with a combined capacity of 24,000 MW hit by a severe crunch in domestic gas supply

* Imported LNG would be pooled with domestic gas and power stations would pay the weighted average price