Gas for power plants: govt must rework strategy as imports turn cheaper

Empowered Pool Management Committee may meet soon

The government will have to rework its strategy for sourcing gas to fire up the stranded power plants, as imports from Qatar have become cheap.

“The Empowered Pool Management Committee may have to meet soon. They have to now understand that since LNG (long-term contract) has become cheaper do we still need to continue with direct imports from spot market or source from Petronet LNG,” Prabhat Singh, Managing Director and CEO PLL, said.

According to Singh, since gas pooling started in June 2015, power plants have stopped taking gas from Petronet and instead sourcing the fuel only through a reverse bidding route of the gas pooling scheme.

After Petronet’s renegotiation of the contract with Qatar’s RasGas, the fuel is available at $7-8 a unit (gas is measured in million British thermal unit). GAIL (India), nominated by the government to import gas for the plants from the spot market, initially supplied the fuel at around $6 a unit to the power plants. This worked well when PLL gas was more that $11 a unit. “But, now the situation has changed,” he added.

The government had in April 2015 formed the Committee to oversee import of fuel for stranded gas-based power plants. The mechanism — to revive almost 14,000 MW of capacity with an investment of overRs. 60,000 crore, stranded because of non-availability of fuel, and about 10,000 MW power plants receiving limited domestic gas and operating at very low plant load factor — was to last till March 2017.

Under the mechanism, power plants bid for their gas requirements on the price fixed by the government. The lowest bidder is given preference. Basically, premium for efficiency is the criteria – the government has fixed the preliminary electricity price of Rs. 5.50 a unit, with flexibility given to the Committee to review the same, depending on the prevailing external factors such as global gas price and the number of bids it gets.

In the first round (in May 2015) of auctions, the Committee had got bids from 10 completely stranded power plants with commitments to generate 5.05 billion units between June-October 2015, but it had missed the target.

In the second auction round that took place in September, five partially stranded gas-based plants and 13 completely stranded plants bid for 2.541 billion cubic metre of gas and committed to generate 12.46 billion units of electricity from October 1, 2015, till March 2016.

Between October-December 2015, the plants generated 5.86 billion units, which is 3.66 billion units more than what they generated in the same period last year. If the committed electricity generation is met, it would result in an outgo of Rs. 1,868.47 crore. In an earlier auction in May, the subsidy outgo was Rs. 723.99 crore. The budget approved for the scheme is Rs. 3,500 crore for the 2015-16 fiscal and Rs. 4,000 crore for the 2016-17 fiscal.

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