GAIL, GSPL to forego part of variable tariff under new mechanism for gas-based power plants

Rs 3,500 cr to be used for auction and subsidy in first year

In the new mechanism for gas-based power plants, key suppliers GAIL and Gujarat State Petronet (GSPL) might have to forgo 50 per cent of their transmission rate and 75 per cent of marketing margin in supplying imported regassified liquefied natural gas (R-LNG), said a senior power ministry official.

To revive gas-based power generation, the government had on Wednesday approved a mechanism for importing gas for power generation and supply of such power through a subsidy grant. Officials said the subsidy would be on incremental LNG that would be sourced.

“GAIL would be the only company sourcing imported gas. GSPL would operate in Gujarat and GAIL is for the rest of the country. We hope to exploit the wide transmission network of both these companies, which have been lying idle for want of both demand and supply,” said a senior power ministry official. (LNG lifeline for stalled power projects)

The government has set up an ‘empowered pool management committee’ to calculate the amount of gas needed for power plants and the subsidy, which will come through the Power System Development Fund.

It would be headed by special secretary, ministry of power, and would have representatives from the finance ministry, GAIL, GSPL, and the Central Electricity Authority.

CEA would be the technical advisory body while the respective lead banker for gas based power plans would be the financial monitors. The government approved a reverse bidding process through which power plants will quote a rate, the subsidy for which will be released through the PSDF.

The committee would finalise the auction methodology and subsidy disbursement in a month's time. Of the total pool of Rs 9,500 crore, in the first year Rs 3,500 crore would be released and balance in the second year. Around 14,000 mw of gas based stranded capacity would be bailed out through this measure. Around 6,000 mw is in Andhra Pradesh.

Under the new subsidy scheme for stakeholders in the gas supply and gas based power generation in the country, all in the supply chain would have to forego a part of their returns on operations. While the central government would give up the service tax it levies on gas sourcing, the power plant operators would forego return on equity.

Of the 24,150 Mw of gas grid-connected power generation capacity in the country, 14,305 Mw has no supply of domestic gas. On this front, an investment of about Rs 60,000 crore is at the threshold of becoming a non-performing asset. The remaining capacity (9,845 Mw), involving an investment of about Rs 40,000 crore, is working at a sub-optimal level, based on the limited quantity of domestic gas in India.