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Business News/ Industry / Energy/  Government to allocate additional domestic gas to power sector
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Government to allocate additional domestic gas to power sector

The gas would be allocated by capping the current domestic gas supply to fertilizer companies

The country has a power generation capacity of 225,793.10 MW of which 9.02%, or 20,359.85 MW, is fuelled by gas. Gas-fuelled power plants have been operating below capacity because of declining production from Reliance Industries Ltd’s D6 block in the Krishna-Godavari basin, the country’s largest reservoir of gas. Photo: HT (HT)Premium
The country has a power generation capacity of 225,793.10 MW of which 9.02%, or 20,359.85 MW, is fuelled by gas. Gas-fuelled power plants have been operating below capacity because of declining production from Reliance Industries Ltd’s D6 block in the Krishna-Godavari basin, the country’s largest reservoir of gas. Photo: HT
(HT)

New Delhi: An empowered group of ministers (eGoM), headed by defence minister A.K Antony, on Friday decided that any additional domestic gas available in the next three years would be allocated to the power sector, providing some relief to fuel-starved power plants in the country.

The gas would be allocated by capping the current domestic gas supply to fertilizer companies.

At present, the fertilizer sector receives 31 million standard cubic metres per day of gas from domestic production and any additional gas beyond 31 mmscmd will be given to power sector, power minister Jyotiraditya Scindia told reporters after the eGoM meeting. “There are about 12-14 mmscmd of gas which in the next three years will come to the power sector," Scindia said.

In a separate development that will help kick-start the award of new power projects in the country, another eGoM on so-called ultra mega power projects (UMPPs), or those capable of generating 4,000 megawatts or more, approved bid documents for new UMPPs. The eGoM is also headed by Antony.

The risk associated with fuel-price volatility and fuel availability has decreased as any increase in the cost of the fuel will be passed on to consumers, according to the eGoM decision on UMPPs. This comes in the backdrop of Central Electricity Regulatory Commission’s (CERC) landmark decision on compensatory tariffs and would help developers to charge higher prices for electricity generated by their plants to offset losses incurred on account of an increase in the price of imported coal.

India intends to build at least 16 such UMPPs as part of its strategy to add large capacities at one location.

The country has a power generation capacity of 225,793.10 MW of which 9.02%, or 20,359.85 MW, is fuelled by gas. Gas-fuelled power plants have been operating below capacity because of declining production from Reliance Industries Ltd’s D6 block in the Krishna-Godavari basin, the country’s largest reservoir of gas.

At the eGoM meeting on gas pricing and commercial utilization, the decision to cap the domestic gas supply to the fertilizer at the present level of 31.5 million metric standard cubic metre per day (mmscmd) was taken.

“The eGoM further decided that all additional domestic gas from the year 2013-14, 2014-15 and 2015-16 will be allotted to power sector to help improve generation," said a power ministry official, requesting anonymity. “EGoM will review the gas production scenario thereafter for deciding supply of additional domestic gas that would be available from 2016-17 onwards to fertilizer and power sectors."

This comes in the backdrop of 39 gas-fuelled power projects totalling 16,374 MW operating at a plant load factor of 23.7%. Also, 13 gas-based power project totalling 7,815 MW which is under construction or ready for commissioning have been stranded in the absence of gas allocation. While the power projects require 102.61 mmscmd of gas, the supply is 27.7 mmscmd.

Speaking to reporters earlier on Friday, power minister Jyotiraditya Scindia had articulated a five-pronged strategy on gas availability and had said that uncertainties of fuel risks are being removed.

This included requesting equal priority to the power sector in gas allocation, additional gas to be offered to the power projects and pooling. Scindia was categorical that pooling would only happen once equal priority and additional gas is given to the power sector.

The power ministry had also asked eGoM to consider power plants in the priority sector for gas allocation. The fuel is allotted to customers by the government in line with the gas utilization policy that prioritizes users: existing fertilizer units rank first, followed by existing power, petrochemical and city gas projects. New gas-based capacities are not on the priority list.

The other measures involve custom duty waiver for gas imports and finalizing a peaking power policy.

Mint reported on 9 May about the power ministry working on a so-called peaking power policy for gas that will encourage power distribution companies (discoms) to invite bids from generation utilities for meeting power shortages during peak consumption hours.

“Around 25 to 30 GW (giga watts) is generated by DG (diesel generator) sets with the cost of 20 per unit. In the case of R-LNG (regasified LNG), it can be as low as 13-14 per unit. It’s a great substitute for DG sets", Scindia said earlier in the day.

Bids for power projects are sought in two ways. In case-II bidding, such as for domestic coal-based power projects ranging up to 4,000MW, resources such as land, fuel and water linkages are identified and in some cases also provided to the developer quoting the lowest tariff. In case-I bidding, the quantity and time period for power procurement are identified, but the fuel type, sources and the plant location are not specified.

“Clarity has been brought in the termination and other generic provisions in the contract. The important feature of the new document is that it makes fuel (including imported fuel) a pass through and proposes a single bidding parameter by way of capacity charge for evaluation. To cover the construction risk and termination risk of the lenders there is a proposal to cover debt due. The document also provides for compensating the investor by way of payment of adjusted equity in the event of utility default," the official said.

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ABOUT THE AUTHOR
Utpal Bhaskar
"Utpal Bhaskar leads Mint's policy and economy coverage. He is part of Mint’s launch team, which he joined as a staff writer in 2006. Widely cited by authors and think-tanks, he has reported extensively on the intersection of India’s policy, polity and corporate space.
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Published: 23 Aug 2013, 11:10 PM IST
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