The Power Ministry has asked the Government to provide gas at a lower price to the sector, so that electricity generated from the fuel is priced competitively. Power being a regulated sector should not be treated like other sectors such as fertilisers and refineries, which are dependent on gas as a fuel, the Ministry commented on the note for the Empowered Group of Ministers (EGoM) circulated by the Petroleum & Natural Gas Ministry.
The EGoM headed by Defence Minister A.K. Antony is expected to consider gas pricing and allocation sometime soon.
The Ministry's has made the plea since the power sector has envisaged a gas demand of 207 mmscmd by 2017. Currently, out of 18,000 MW commissioned gas-fired capacities, 30 per cent is unused due to lack of domestic gas.
In addition, another 10,000 MW are in advanced stages of construction.
This Power Ministry's plea may not be acceptable to the Petroleum Ministry as there may be scenarios where price may rise to unviable levels for some sectors.
Moreover, there is a fear that consumers may form cartels to drive down prices.
A senior Power Ministry official privy to the views given by the Ministry said that gas price for the power sector should be competitive against competing fuel – coal – and should be affordable to the consumers.
For comparable countries such as the US, China and South Africa, where the gas-based power has to directly compete with coal, gas prices are kept competitive.
Today, electricity price in the country ranges between Rs 3 and Rs 7 for a unit (excluding spot purchases). This is mainly coal-based, both domestic and imported.
The fuel cost in gas-based power generation is around 80-85 per cent, whereas the share of fuel cost in final product is very low.
According to Power Ministry, gas-based power plants beyond fuel cost of Rs 3.50/unit is not feasible. Besides, at the current rupee-dollar exchange rate, every unit of electricity costs 45 paise for every $1/mmBtu of gas.
Therefore, domestic gas price beyond $5/mmBtu is unviable for power generation, as added to this will be generation (between 99 paise and Rs 2/unit) and transmission charges (Re 1-Rs 2/unit), the Ministry said.
"The non-core sectors such as industries and refineries can pay much higher gas price compared to a highly regulated sector like the power sector," said a senior Power Ministry official. These plants cannot operate on expensive imported gas because the higher cost of electricity generation cannot be passed on to the customers.
The Power Ministry has expressed concern that it was not consulted by the Rangarajan Committee when it finalised the report on gas pricing despite the Ministry being the major anchor consumer of indigenous gas.
However, the Petroleum Ministry has said the Rangarajan Committee had solicited comments of all the stakeholders during the course of its deliberations and invited comments from the public.
"Representatives of the industry associations were also offered opportunity to present their views to the committee.
Many of the companies had also presented their views, including Reliance Power which has been included in the Rangarajan Committee report," it said
Source - Hindu