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Govt plans to restrict gas for merchant power plants

business Updated: Oct 05, 2011 21:25 IST
Anupama Airy

The government has decided to restrict the supply of domestic gas from both public and private production facilities to power plants selling electricity as merchant power and at a premium over rates fixed by the regulator. The decision is in line with the recommendations of the Ashok Chawla committee on natural resources.

Power being a priority sector, gets the first preference in allocation of domestic gas. The latter is currently a scarce resource given the huge demand from all other sectors including fertiliser, petrochemicals, steel and others. Moreover, as domestic gas is being sold at a much lower price of $4.2 per unit compared to $13-14 a unit for imported gas (or LNG), the government is of the opinion that the supply of domestic gas should be made only to those power plants that are supplying power from their plants to the grid for regulated rates.

While regulated power rates are Rs 3-3.5 per unit, developers charge huge premium for supplies to private entities. Electricity traded as merchant power in the market is fetching developers Rs 6-7 per unit, almost double that of regulated tariff rates fixed by states.

"It has come to the notice of the government that private power developers are selling power produced from domestic gas at a huge premium to the regulated rates," a senior petroleum ministry official told HT.

"It has been brought to our notice by AP Transco that Lanco Kondapalli expansion and Tanirbavi, both having KG D6 gas allocation are merchant power plants, which are selling power during peak seasons to private entities at an average price premium of approximately Rs 2 per unit compared to regulated rates," the official said.

The petroleum ministry has also written to the power ministry seeking its approval on the modifications of directions given by Reliance Industries Ltd, the contractor producing gas from KG-D6 fields, that "no cuts" in gas supply should be applicable only to those power plants, which are supplying power to state/other power distribution companies, at rates approved by the state and central electricity regulator for long term power supplies under the power purchase agreements

"In view of the scarcity of domestic gas, the current and future allocations of domestic gas will be subject to the condition that the entire electricity produced from this gas shall be sold under long term PPAs to the grid/distribution companies at regulated tariffs approved by the regulators," the petroleum ministry official said.

The same has also been recommended by the Chawla Committee on Natural Resources. The committee, in its recent report to the government, has recommended that the price of the gas should be determined through a market mechanism, without there being any need to provide any input subsidies.