Upcoming gas based power plants could become bankrupt if the government doubled the price of natural gas, says the power ministry. The ministry has told an empowered ministerial panel on pricing of gas that the new prices will raise the costs for the plants by over Rs 46,000 crore per annum.
The differences could hold up the finalisation of new gas prices and create problems for investors like Reliance Industries banking on the price revisions to expand investments in the sector.
The higher price of $8.8 per mmBtu was made by the C Rangarajan committee formula but the ministry finds it neither represents "well head price of conventional natural gas anywhere in the world nor do they reflect the cost of service for producing gas in India".
While there is a freeze by the Central Electricity Authority on construction of fresh gas based power plants, those already under way include projects by Reliance ADAG and NTPC among others.
The observations have been made in a recent note to the ministerial group on pricing of gas and its commercial utilisation by the power ministry.
The Rangarajan committee has recommended the domestic gas price should be indexed with global prices and ending of the existing production sharing formula for hydrocarbon excavation replacing it with the sharing of revenue between the contractor and the government, instead.
The ministry headed by Jyotiraditya Scindia has said the total gas-based capacity now under construction is around 28,000 MW.
If the base gas price is raised from $4.2 per mmBtu to around $8.8 per mmBtu the impact for the sector works out to Rs 46,360 crore per annum.
This would cascade on to the power distribution companies which would not be able to buy the costly gas-based power.
"Any increase in the cost of gas-based power generation by increasing the domestic gas prices will put enormous burden on the state distribution utilities and shall negate the effect of financial restructuring initiative by the government," the ministry argued.
It saw no reason in increasing the price of administered price mechanism (APM) gas being supplied to the power sector as the costs of the gas fields has already depreciated and costs have been virtually re-paid by the anchor customers like the power sector.
The power ministry also argued that gas should be priced in rupee terms, or if it is priced in dollar, it should be fixed to an exchange rate.
* The power ministry has told an empowered group of ministers (EGoM) that raising prices of natural gas would raise costs by Rs 46,000 crore for power plants cascade to distribution utilities
* The Rangarajan committee formula priced gas at $8.8 per mmBtu from the earlier price of $4.2 per mmBtu
* The committee has also recommended that domestic gas price be indexed to global prices
* The ministry has argued that there is no reason for withdrawing the APM as costs of gas fields have already depreciated and repaid by anchor customers
Source- Indian Express