The Centre's decision to totally eliminate 10% import duty on naphtha will bring in a partial relief to the India's power sector, which is facing a peaking shortage of 14% and energy shortage of 8%. The elimination of import duty will bring down the price of naphtha, since petroleum products are priced on an import-parity basis, which includes components such as freight and import duty.
NTPC, which has an installed capacity of around 25,000 mw sees the fall in the crude prices to $40 per barrel coupled with the elimination of import duty on naphtha will result in reduction in the per unit tariff by 50 to 55 paise for naphtha-based power projects. On the other hand, GMR, which runs its 220-mw- Mangalore power project on naphtha, hopes the tariff will fall by at least 75 paise.
NTPC chairman and managing director RS Sharma told “At present NTPC gets naphtha at the delivered price of $9 per million British thermal unit (mmbtu). With today's decision to eliminate import duty, there will be a reduction of $1.5 per mmBtu at the delivered cost of naphtha for NTPC. This will definitely bring down the variable cost by at least 50 to 55 paise. NTPC currently at the naphtha based generation of 780 mw. They will increase the use of naphtha to further improve generation at these projects.”
Since the country is not self-sufficient in natural gas, power producers often use naphtha for generating electricity. The price of naphtha has decreased to about $10 per mmbtu as compared to over $30 per mmbtu in June this year. Prices of naphtha, which have traditionally been higher than imported gas, have fallen to levels which are currently lower than gas. This has made naphtha more competitively priced than imported gas.
“The package will definitely help the power producers. It will help us to bring down the tariff of power that we sell to transmission companies. This is a welcome move as the prices of naphtha have fallen by 50 per cent from their peak, and elimination of import duty will result in lower cost of raw material for the power producers,” said A Subba Rao, president and CFO, GMR Energy Ltd.
However, NTPC director (operations) Chandan Roy said that eventhough the centre's move is a positive sign, the market forces wll now bring pressure on the suppliers of sport regasified liquefied natural gas (RLNG) to bring down its prices and bring it to the level of reduced naphtha prices. RLNG suppliers in any case supply RLNG at the 25% below naphtha prices. NTPC will benefit and also the customers as a whole.
Courtsey- Business standard