Govt announces bailout for gas projects, lenders5 min read . Updated: 26 Mar 2015, 01:24 AM IST
Under the plan, state-owned MSTC Ltd will set in motion a so-called reverse e-bidding process for supply of electricity to distribution companies
New Delhi: The government on Wednesday announced a bailout for stranded gas-based power projects and their lenders, under which liquified natural gas (LNG) will be imported and cash-strapped state power distribution companies financially supported to buy electricity from them.
Under the plan, state-owned MSTC Ltd will set in motion a so-called reverse e-bidding process for supply of electricity to distribution companies.
The company that bids the least support tariff from the Power System Development Fund (PSDF) will be supplied LNG which will be priced cheaper because state-owned GAIL (India) Ltd will offer a discount on its marketing margin and pipeline charges and states will forego value-added tax and other local charges.
MSTC is currently running the coal block auction process and will help select the developer for the subsidy support that will be provided directly to the state distribution utilities.
The plan, approved by the Cabinet Committee on Economic Affairs (CCEA), will help generate 79 billion units of electricity valued at around ₹ 42,000 crore. It will also help revive the Dabhol plant of Ratnagiri Gas and Power Pvt. Ltd.
“Out of 24,150MW (megawatt) gas grid connected power generation capacity in the country, 14,305MW of capacity has currently no supply of domestic gas and may be considered as stranded. This represents an investment of over ₹ 60,000 crore which is at the threshold of becoming Non Performing Assets (NPAs). The balance capacity of 9,845MW involving an investment of over ₹ 40,000 crore is also working at a sub optimal level based on the limited quantity of domestic gas in the country," the government said in a statement on Wednesday.
Banks’ exposure to the capital-intensive power sector is estimated at ₹ 3 trillion, more than the total amount of gross NPAs in the banking system. 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. India plans to import 10 mmscmd through this mechanism and 18mmscmd after the monsoons.
Briefing reporters, Piyush Goyal, India’s minister for power, coal and new and renewable energy, said that the power projects that will be supplied gas will be selected through a transparent process and the electricity generated from these projects will provide reserves to the national grid, thereby helping in peak load management.
The move will provide electricity to the power starved southern Indian states that are facing transmission constraints with around 5,500MW of capacity lying idle due to lack of fuel. The PSDF will help cushion the impact of this tariff increase on the distribution utilities.
“Whoever bids the lowest support requirement will be given the gas," Goyal said.
Goyal added that this will allow the plant to operate at a plant load factor of 30%, helping the developers meet the operational and maintenance cost of the project and servicing their loans. However, the promoters will have to forego their return on equity (RoE).
“This would make sense in the southern region where maximum stranded gas projects are located and a region that experiences peak deficit due to transmission constraint from rest of country" said Debasish Mishra, senior director, consulting at Deloitte Touche Tohmatsu India Pvt. Ltd.
Most experts and power company executives blame the lack of fuel supplies and absence of power purchase agreements with state-run utilities for stranded power plants.
“Once the government of India comes out with the guidelines, contours of the bid process would be clearer. Discoms have to spell out the quantum of peak capacity they would like to procure and the price they would be willing to pay," said Mishra.
He added that with only 30% capacity utilization, most of the power plants would be running fairly inefficiently.
The cabinet on Wednesday also cleared some amendments introduced to the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement (Amendment) Bill, 2015, that was passed by the Lok Sabha on 10 March.
The amendments introduced in the 2015 bill ahead of its passage include mandatory employment to at least one member from the family of people displaced by land acquisition.
Another provides for the government to ensure the land acquired is the bare minimum required for a project while another calls on the government to undertake a survey of wastelands.
The cabinet also approved a host of proposals to improve the ports, inland water transport facilities and efficient rail evacuation systems from the ports.
The concept and institutional framework of the Sagarmala project got the cabinet’s nod with its prime objective being to enhance the capacity of major and non-major ports and modernizing them to make them more efficient.
The cabinet also declared 101 additional inland waterways as national waterways for navigation. So far, only five waterways have been declared as national waterways.
“This will create a logistic supply chain with intermodal (Rail, Road and Waterways) connectivity. Investment in all these business areas will create numerous opportunities for employment and economic development and reduce pressure from the already over-loaded, congested and costlier other surface modes of transport," the cabinet statement added.
Inland water transport presently carries just 0.4% of freight transport in India compared with 42% in the Netherlands, 8.7% in China and over 8% in the US. A special purpose vehicle (SPV) was approved to provide rail evacuation systems to major ports to enhance handling capacity and efficiency. The SPV would be funded by all the 12 major ports, which are run by the Union government, and Rail Vikas Nigam Ltd (RVNL). Major ports would contribute 90% of the equity with RVNL contributing the rest.
The Cabinet also approved a new national e-governance plan named e-Kranti which will be integrated with its Digital India programme.
“The Mission of e-Kranti is to ensure a Government wide transformation by delivering all Government services electronically to citizens through integrated and interoperable systems via multiple modes, while ensuring efficiency, transparency and reliability of such services at affordable costs," a cabinet statement said.
Also approved was the National Supercomputing Mission, a programme to enable India to leapfrog to the league of world class computing power nations.
“The Mission would be implemented and steered jointly by the Department of Science and Technology and Department of Electronics and Information Technology at an estimated cost of ₹ 4,500 crore over a period of seven years," a statement said.
The CCEA also decided that central assistance for intra-state transport of foodgrain and grain dealers’ margin to the tune of ₹ 4,341 crore will be available to states that have started implementing the National Food Security Act (NFSA).
The centre will bear 50% of these expenses for general category states and 75% for special category states.
So far, only 11 states have begun implementing the NFSA, and the government expects that the decision on central assistance will incentivize the remaining 25 states and Union territories to start impementation.
Sayantan Bera and Elizabeth Roche contributed to this story..