Power ministry seeks Rs 24,239 crore subsidy for stranded gas projects

Also seeks cabinet's approval for pooling price of imported LNG with domestic gas to make investments worth Rs 40,000 crore viable

The power ministry has asked Rs 24,239 crore from the government as subsidy for reviving gas-based power plants of 24,000 Megawatt (Mw) capacity stranded for want of fuel.

The ministry has sought the cabinet’s approval for pooling the price of imported LNG with domestic gas to make investments worth Rs 40,000 crore viable

Under the proposal, the ministry is seeking additional 1.1 million metric standard cubic meter per day (mmscmd) of gas in the current fiscal, after meeting the fertilizer sector’s demand, for firing 5,400 Mw projects dependent on KG-D6 block and 1,300 Mw newly commissioned projects.

This will be supplemented with 5 mmscmd of imported gas jacking up the cost of production to Rs 10.4 per unit as compared to Rs 5 per unit cost at present.

Considering a variable level of total tariff of Rs 5.5 per unit, the indicative subsidy to be borne by the government works out to Rs 2,498 crore in 2013-14. Similarly, the total subsidy for the next two financial years has been worked out as Rs 10,992 crore and Rs 10,849 crore respectively, said a source close to the development. The proposal is based on estimated imports of 5 mmscmd this year, 8 mmscmd in 2014-15 and 14 mmscmd in 2015-16.

The power ministry has proposed to cap the power prices from gas-based plants at Rs 5.50 unit in 2013-14 and Rs 7 per unit and Rs 7.50 a unit in the next two financial years. The power ministry has said the subsidy is required because the high cost of imports will make gas-based generation unviable in the merit order dispatch.

India has a current installed gas power capacity of 18,000 Mw – 8.3% of the total capacity of 225,000 Mw. With production from Reliance Industries’ KG-D6 block declining from a peak of 63 MMSCMD in 2011 to less than 14 MMSCMD now, supply to power sector has become zero since March this year. The shortage of domestic gas has resulted in significant gas- based capacity getting stranded or operating at low efficiency of 27%.