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Gas set to turn costly for merchant power companies

The government is looking at restricting the supply of domestic natural gas to power plants that are selling power in the open market, and is proposing to charge the market price on the natural gas supplied to all merchant power plants. Anupama Airy reports. Fuel for debate

business Updated: Aug 01, 2011 02:04 IST
Anupama Airy

The government is looking at restricting the supply of domestic natural gas to power plants that are selling power in the open market, and is proposing to charge the market price on the natural gas supplied to all merchant power plants.

The ministry of petroleum and natural gas has upheld the Ashok Chawla committee recommendation that the price of dometic natural gas for gas-based power plants other than those selling power to states at the regulated tariffs, be market-determined.

At present, there is no such distinction. All gas-based power plants are being supplied cheaper domestic gas, priced at $4.2 per unit as against market price of over $12 a unit. This despite the fact that some of the plants sell part of their power in the open market. Regulated power tariff is in the range of Rs 3 to Rs 3.5 per unit, against Rs 6 to Rs 7 per unit in the open market.

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The Ashok Chawla committee, which studied the issue of allocation of natural resources, observed in its report: "As the gas-based power projects are receiving the benefit of an earmarked supply, it is important to ensure that the benefits are passed on to the consumers of electricity."

The ministry of petroleum and natural gas has now told the Prime Minister's Office that "it is in agreement that the price of gas should be determined through market mechanism and gas for power plants should be made available only to such state owned or private plants that are willing to subject themselves to regulated tariffs i.e. merchant power plants would not be eligible for... domestic gas supply."

The implementation of the proposal would require an approval of the Empowered Group of Ministers (EGoM).

The Chawla committee has also requested the EGoM "to revisit the earmarked allocation of gas for such power plants as are not willing to subject themselves to regulated tariffs."