D6 gas price revision move faces opposition from power producers
The government is planning to revise natural gas price for RIL?s D6 block in the KG basin ahead of the official 2014 schedule decided by a ministerial panel in 2008. But the move has provoked strong opposition from the power sector, the biggest consumer of the fuel.
RIL started production from the field in April 2009. It was expected to achieve peak production of 80 mmscmd by the end of 2012. But performance of the field has so far been a far cry from the projection given by the field contractor to the government. The output from the block is projected to further drop to 20 mmscmd by 2015 from the current level of 34 mmscmd, adding to uncertainty about the viability of projects which were planned and developed on the hope of assured gas supply from D6.
Power projects worth over 8,000 MW capacity are facing the prospect of getting stranded due to non-availability of gas from the block. Meanwhile, the contractor has been lobbying with the government for a revision in the gas price from the block. Finally, the government seems to have decided to consider its request.
What seems to have provoked a sharp reaction from the power industry is that the government is considering a revision in D6 gas price ahead of 2014 when it would be officially due. What is even worse, this comes at a time when power producers are yet to recover from the shock of an unprecedented increase in the international coal price after key coal exporting countries like Indonesia changed their coal pricing methodology.
Power plants with a coal linkage from Coal India Ltd are facing a fuel security crisis owing to inadequate coal supplies from the public sector producer. CIL is unable to step up coal production to meet the demand of the power sector.
Meanwhile, payment risks are also looming for power generators, with the financial health of power distribution companies dipping to an all-time low from the ever-increasing gap between discoms’ revenue and expenditure. Discoms’ accumulated losses are estimated to have crossed R2 lakh crore in the financial year 2011-12.
?The biggest challenge before power project developers today is to secure adequate and appropriately priced fuel to keep power costs affordable. Since the retail price of power is regulated, the issue of absorption of increases in power cost due to fuel cost escalation needs to be always kept in mind?, Ashok Khurana, director-general, Association of Power Producers (APP) has written to the petroleum minister S Jaipal Reddy in protest against the government’s planned move to review the price of the D6 gas. The APP is a body of private power project developers like Tata Power, Reliance Power, Lanco Power and Adani Power.
Significantly, the government set up the ministerial panel in 2007 to decide on the D6 gas price when a dispute arose between the Ambani brothers over the pricing of gas that was distributed to the younger brother as a part of the family division of assets. The younger brother insisted on paying the $2.34 per mmbtu, the same price that RIL had quoted for supplying gas to NTPC earlier.
?Gas supplies from Nelp and APM sources are $ denominated and looking at the rupee depreciation since 2007 (R40/$) to now (almost R54/$), this had a direct increase of 35% on the cost of gas-based power, thereby increasing tariff by 44 paise/kWh,? Khurana pointed out.
