Govt asks GAIL to assure gas supply to power projs

Resolving the issue of fuel supply guarantee to upcoming gas-based power projects, Oil Ministry has asked state-run GAIL India to extend 'comfort letters' assuring gas supplies so that the developers can raise finances.

As per the new dispensation, GAIL would assure gas supplies when the projects become operational but the price would be the prevalent market rates, top sources said.

Some developers had said they could not begin work on projects in absence of a bankable gas supply contract and the new arrangement would help them get finances from banks and financial institutions.

Upon completion of the power plants, the government will allocate fuel to them from domestic fields like those of Reliance Industries' eastern offshore KG-D6. In case domestic gas was not available, GAIL would import liquefied natural gas (LNG) and supply it to them at market rates.

"We want to ensure that the power projects are not stranded for want of gas supply contracts. Once they are built, supplies would be ensured either from domestic fields or by way of imports," a source said.

The developer would not suffer any financial loss in case it gets imported LNG as the entire fuel cost is pass through as per electricity regulations. The term market price was inserted in the comfort letters so as to accommodate both domestic as well as imported-LNG rates.

Another source said the term market price was inserted in the comfort letters so as to accommodate both domestic as well as imported-LNG rates. "Government's gas utilisation policy will not be restricted to allocating fuel from KG-D6 alone. It will also extend to gas produced from other fields like those of Oil and Natural Gas Corp (ONGC)."

GUP has given urea-based fertiliser plants and power projects top priority in allocation of gas from KG-D6 and the same was likely to continue with other fields as well.  

Tariff for power plants is determined by Central Electricity Regulatory Commission (CERC). As per the regulation for fixing the tariff under the Electricity Act 2003, the fuel cost (price of gas) is a pass-through to beneficiary states/union territories who in turn realise this from consumers.

"The power companies will in no case suffer any loss and the new dispensation would ensure that their projects are on ground," the source added.