Gas-based power: Government to blame for crisis, says panel

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Updated: January 8, 2019 9:12:42 AM

With gas-based power units of over 14,000 mega watt (MW) — about 60% of the installed capacity — being stranded for want of fuel and customers, a parliamentary standing committee has rapped the petroleum ministry and the government as a whole for its ‘gross miscalculation’ of supplies from the KG-D6 fields off the country’s east coast, the chief reason why these units’ plans have gone haywire.

With gas-based power units of over 14,000 mega watt (MW) — about 60% of the installed capacity — being stranded for want of fuel and customers, a parliamentary standing committee has rapped the petroleum ministry and the government as a whole for its ‘gross miscalculation’ of supplies from the KG-D6 fields off the country’s east coast, the chief reason why these units’ plans have gone haywire.
While peak flow of gas from these once-prolific assets, owned by Reliance Industries and BP, was expected to be 80 mmscmd, the production is currently hovering around 5.5 mmscmd.

Since March 2013, supplies to the power sector from the KG-D6 fields have been virtually nil; apart from the steep fall in output, the sector’s loss of priority consumer status under a government policy also led to the drying up of supplies.

“Such situations,” the panel said, “reflect poorly on the credibility and reliability of the government’s projections and policies”. The committee, however, opposed the government’s reported plan to allow free-market pricing of gas, saying it will result in “exorbitant prices” and be detrimental to the users.

Out of the 24,867 MW of installed gas-based power capacity, 31 units (14,305 MW) is currently stranded due to shortage of domestic gas supply. While seven such plants are government-owned, 24 (9,673 MW) belong to the private sector. Out of these, 5,194 MW were set up mainly with the expectation of rise in domestic gas production from the KG-D6 field.

The stranded plants include those of Reliance Infra, GMR Energy, GVK Power and Lanco Power. Lead lenders to big-ticket gas projects include IDBI, SBI and Axis Bank, with outstanding amounts of about `16,300 crore, `2,000 crore and `1,900 crore, respectively.

The continuous drop in the price of solar and wind-based electricity, coupled with demand growth not being at par with the surge in addition of power generation capacity, has hurt the utilisation levels of thermal power plants. Additionally, since gas-based electricity being much costlier than other sources of power, state-owned discoms are disinclined to sign long-term PPAs with them. At 7-12/unit, gas-based power is costlier compared with `2.41-3.50/unit range discoms pay for other power sources on a weighted average basis.

“ONGC supplies gas to power plants at prices as high as $7.68/million British thermal units (mbtu) from its off-shore deep-water basins, which makes it impossible to sell electricity at lower prices to discoms,” a senior official from a gas-based-power company told FE on condition of anonymity.

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“For gas-based power to be affordable, it has to be priced at around `3/unit, and to achieve such pricing the cost of gas at burner tip should not be more than $5.5-6.0/mbtu,” the power ministry told the parliamentary committee.

Currently, the gas price at power plants remains in the range of $4-8/mbtu for domestic gas and $10-12/mbtu for imported RLNG.
The House panel, headed by BJP legislator Kambhampati Haribabu, noted that all operational LNG terminals in the country – with combined capacity of 95 mmscmd – are situated on the West Coast of the country and asked the petroleum ministry to speed up construction of the planned terminals on the east coast, where many power units are stranded for want of fuel.

According to the committee’s report, when it had asked a top banking executive about the future of gas power in the country, the person admitted that lenders are “groping in the dark” on this issue. With no solution in sight, “we have to write off this investment”, the executive said. At this, the committee expressed its dismay and noted that “instead of ensuring how these stranded power plants can be efficiently utilised, there is an air of despondency and increasing clamour to send these plants to NCLT”.

“Report of the parliamentary committee captures most of the concerns of the gas-based power plants and the possible option for revival of the gas based projects,” a senior official from the GMR Group told FE. “As the demand for energy is picking up due to the government’s effort in electrifying all households, revival of gas-based plants will help in providing clean energy as well meet the country’s peak demand,” the official added.

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