Gas price hike to hit power, fertiliser companies

Thursday, 13 March 2014 01:56 Pradeep B

Gas price hikeWith barely three weeks left for the hike in domestic gas prices (prices are expected to double from $4.2 a unit to almost $8 or more from April 1), user industries in power and fertiliser sectors are already feeling the heat on apprehensions that the viability of their investments in projects at new prices will become unsustainable.

For consumers, the increase in prices would mean paying more for power, food and transportation. However, with general elections drawing to a close, even though power tariffs may not be raised immediately, state-owned power distribution companies (Discoms) may be asked to sell electricity below costs.

The result: Discoms, already reeling under acute financial crisis, will be forced to borrow to pay for costly power supplies. Subsequently, in order to cut losses, these companies, post election, will either pass on the impact of high cost on consumers or will avoid buying power at high rates, which may lead to blackouts across the country.

To avoid a crisis, power and fertiliser ministries have already approached the petroleum ministry for supply of gas at cheaper rates.

"Gas-based power at new rates is unaffordable... we have informed higher authorities (Prime Minister's Office and finance ministry) that gas prices above $6 a unit are not sustainable for power projects and without a proper burden-sharing mechanism, such plants will have no buyers and may have to shutdown," a senior power ministry official said.

"The fertiliser secretary has written to us for cheaper gas but the new price formula has been approved by the Cabinet with due consultations with the power and fertiliser ministries and it is not possible for us to provide gas at a cheaper rate to any particular industry," a top oil ministry official said.

India's largest power generation company, NTPC, which is currently running its gas-based plants at just 35% of its total capacity, has said that it was not sure at what capacity it will be able to run its power stations post price rise.

Source- HT