With the government preparing to rationalise gas distribution from RIL?s KG-D6 block in the wake of a drop in production, Lanco and GMR plants in Andhra Pradesh are a worried lot.
Lanco?s Kondapalli power plant expansion and GMR Tanir Bawi power plants in Andhra Pradesh, which are earning a fortune by selling power in the free market, are facing cancellation of gas allocation from RIL?s KG-D6 block.
At present, Lanco and GMR plants have allocation of 1.458 million standard cubic metre per day (mscmd) and 0.883 mscmd gas from the block, respectively. These plants have not signed long-term power purchase agreements (PPAs) despite being allocated cheaper domestic gas.
As output from D6 block has fallen to less than 35 mscmd a day from 61.5 mscmd in March 2010, the government is likely to cut allocations from the field so that only priority customers are offered gas.
?Since these two firms are not selling power produced from KG-D6 block at regulated tariffs under long-term PPA, it is proposed that the existing KG-D6 allocations of GMR Tanir Bawi and Lanco Kondapalli expansion of 0. 883 mscmd and 1.458 mscmd respectively, be cancelled,? the oil and gas ministry had said in a proposal forwarded for consideration by the empowered group of ministers (EGoM), scheduled for a meeting on Friday. The ministry had decided that cheaper domestic gas be allocated only to those plants selling power at regulated price under PPA.
The power ministry had also approved the proposal. ?We have recommended gas allocation to power plants that have signed PPAs with power distribution companies (discoms),? said power secretary P Uma Shankar.
These Lanco and GMR plants have not signed any PPAs with discoms and sell their power in open market which fetches them a premium of over R2 a unit over the prevailing PPA tariff for similar plants in the region.
?Both Lanco Kondapalli expansion and Tanir Bawi are merchant power plants, selling power to private entities and enjoy an average price premium of approximately R2 a unit, compared with the regulated tariff,? Andhra utility AP Transco has told the petroleum ministry in a clarification.
The petroleum ministry had contended that cheaper domestic gas be allocated only to plants selling power at tariffs determined by the electricity regulatory commissions.
This would eliminate the requirement of providing domestic gas to power units that are getting premium on their power supply to industries willing to pay more for getting uninterrupted supply of electricity in their hours of need.
?It is expected that similar exercise could be considered for a few other power projects that are getting KG-D6 gas but may be involved in merchant sale,? said another source in the oil and gas ministry.
The seriousness with which the government is looking to rationalise domestic gas allocations is to ensure that adequate supplies are maintained for the fertiliser sector, the top in the priority list for gas allocation.
The production from KG-D6 block is expected to fall further to 27 mscmd in the next fiscal and further to 22 mscmd in 2013-14.
If production of gas from other sources does not improve, it could pose challenge for the government to meet the requirements even of the core customers. Already, D6 allocations for non-core customers in the steel, petrochemical sectors have been withdrawn.