The power ministry has cautioned central decision makers that gas-based power generation would turn unviable if the Empowered Group of Ministers (EGoM) accepts the petroleum ministry's proposal to go in for a steep increase in the price of natural gas from the existing $4.2 a unit to $8.8 a unit.
In a letter to the petroleum ministry, the power ministry said the proposed increase in natural gas prices to $8.8 a unit would cast an impact of nearly Rs. 30,000 crore that would be difficult for state discoms (distribution companies) to absorb.
"The impact on existing gas- based stations of the increase in base gas price is Rs. 29,800 crores per annum," the power ministry said in response to the proposed EGoM note.
"The beneficiary states, discoms will not be able to schedule costly gas based power and will rather be exposed to huge burdens…..any increase in the cost of gas based power generation by increasing the domestic gas prices will put enormous burden on state discoms and negate the effect of the financial restructuring initiative by the Centre."
The ministry also stated that there should not be any further increase in price of APM (administered price mechanism) gas being supplied to power sector as the costs of these gas fields have already depreciated and costs have been virtually repaid by the anchor customers like power sector.
"While upstream gas producers may get attractive gas price based on reasonable returns, the downstream consuming sectors may be charged different gas prices commensurate with their price appetite," said the ministry, adding that the gas price for power sector should be competitive, vis-a-vis the competing fuel (coal), and should be affordable by the consumers.
"Base price of domestic gas beyond $5.0/MMBtu (million metric British thermal units) may be unviable for power generation."