Industry pins hopes on new govt plan for gas power plants revival

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Published: July 11, 2019 12:41:32 AM

The govt will roll out suggestions of a high-level panel where the power and petroleum ministries will jointly frame a scheme for revival on the lines of earlier e-bid RLNG scheme

Clarity was also missing about how the challenges which led to the failure of the earlier RLNG scheme would be overcome.Clarity was also missing about how the challenges which led to the failure of the earlier RLNG scheme would be overcome.

Though the government promised to take up the case of underutilised gas-based power plant, which has pushed 14,305 MW of electricity generation units worth Rs 65,000 crore to the verge of becoming non-performing assets, the industry is waiting to see how the government plans to execute it.

The finance minister said in her Budget speech that the government would implement the recommendations of a high-level empowered committee which wanted the power and the petroleum ministries to jointly frame a scheme for revival of gas-based power plants on the lines of earlier e-bid RLNG scheme, supported by the power system development fund (PSDF).

However, the Budget has allocated a meagre Rs 1 lakh to PSDF for “utilisation of gas based generation capacity”, compared to Rs 227 crore sanctioned in FY18. Also, the Budget did not lower the clutch of duties and taxes which raise gas-based power prices.

Clarity was also missing about how the challenges which led to the failure of the earlier RLNG scheme would be overcome. On top of that, neither did the government act on its earlier plan to waive the 2.57% customs duty, nor did it bring natural gas under the GST regime, which was expected to bring the fuel to a 5% tax slab against the 15-20% VAT currently levied.

“Regardless of whether the government uses PSDF mechanism or utilises the funds allocated for clean cess, the idea is to revive the gas assets in a way that is amenable to the procurers, as well as developers,” said Pradeep Mittal, executive vice chairman, Essar Power. Mittal was referring to the Rs 53,000 crore collected through clean energy cess till July 2017, which can only be used for environmental purposes. Apropos, carbon dioxide emissions of natural gas-based power plants is 50-60% lower than their coal-based counterparts. Essar Power has a 300 MW stranded gas plant in Gujarat.

The earlier version of the RLNG scheme, implemented in FY16 and FY17, had not achieved much success because many states refused to buy power at Rs 4.70/unit, and also did not extend the tax-cuts required to buy power through this scheme. As much as Rs 7,500 crore was earmarked for the RLNG scheme in FY16 and FY17 from the PSDF, but only Rs 1,392 crore was actually paid due to muted response.

About six months ago, the cost of gas-based electricity was Rs 7-8/unit (out of which fuel price comprised Rs 5.5-6.5/unit), much higher than the Rs 2.41-3.5/unit range at which cash-strapped electricity distribution companies (discoms) buy coal, hydro or renewable power.

However, with spot gas prices dropping to $5/mmbtu (from $10/mmbtu in November 2018), analysts noted that tariffs from about 6,600 MW of gas-based plants should come down to Rs 5.25-5.45/unit. Had the Budget offered tax exemptions under the current scenario, tariffs from these beleaguered assets would have come down by another 30-40 paise per unit, analysts at Crisil said. “To bring down the composite tariff to Rs 4.30-4.50/unit, the subsidy requirement works out to Rs 2,800 crore/annum,” Crisil added.

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