Gas-based power plants forego subsidy in reverse auction

Bidding mechanism likely to be revised to accept zero and negative bids

Gas-based power producers have put near-zero bids to procure subsidised RLNG from the government.

This was the third round of a reverse e-auction process for power plants to avail the subsidy to buy costly imported regasified liquefied natural gas (RLNG). This involves a reverse bid for the subsidy amount to come from the Power System Development Fund (PSDF).

The eligible bidders indicate the total incremental electricity they would generate using the e-bid RLNG. The companies also quote the subsidy they require to ensure the net purchase price for the distribution companies to buy that power, without exceeding the target plant load factor.

However on late evening of Tuesday, during the third such bidding, the power producers did not indicate any subsidy amount. “The companies were ready to buy gas at the floor price suggested by government,” said a senior power ministry official. He did not disclose the floor price.

Officials said the ministry of power would review the process, as no one had envisaged that financially sick gas-powered plants would forgo the subsidy in the round. A revised auction is likely at the end of this week.

Sources said the committee would allow negative and zero bids. If so, the government would save on the PSDF amount given to support the gas-based plants. The amount was calculated to be around Rs 1,600 crore.

The second round of the revival plan for gas-based power plants got bids from units with cumulative installed capacity of 8,262 Mw in August last year. This involved government support of Rs 1,590 crore from the PSDF.

In the first round in June 2015, 14 gas-based power plants with cumulative capacity of 8,100 Mw had bid. The successful bidders were mostly from the southern region.

Under the gas mechanism announced last year, every stakeholder in the supply chain would have to forgo a part of their returns on operations. While the central government would give up the service tax it levied on gas sourcing, the power plant operators would forgo return on equity. GAIL would source the imported gas and with Gujarat State Petronet would forgo 50 per cent of their transmission rate and 75 per cent of the marketing margin in supplying imported RLNG.

The lead banker to these plants would ensure all receipts of money would be utilised only for payments towards the variable cost of generation (fuel cost), and the operation and maintenance expenses, in accordance with regulatory guidelines. Debt servicing would be made after capping the fixed cost.

Of the 24,150 Mw of gas grid-connected power generation capacity, 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.