Power producers oppose any hike in gas prices

With the government acknowledging Reliance Industries' argument for reopening KG-D6 gas pricing, an association of private power producers has opposed any hike in rates saying the cost of electricity will rise by 50 paise per unit for every dollar increase in gas price.

Association of Power Producers (APP), whose members include Anil Ambani Group firm Reliance Power and Tata Power, on March 7 wrote to Oil Minister S Jaipal Reddy saying domestic natural gas prices should not be increased above current rate of $4.2 per million British thermal unit.

"It may be noted that for every $1 per mmBtu increase in gas price, the cost of generator increases by 35 paisa per unit, and the cost of power to the end consumer goes up by 50 paisa per unit," APP Director General Ashok Khurana wrote.

An Empowered Group of Ministers (EGoM) on Gas Pricing last month "noted that there is a wide divergence between the domestic and international prices of gas and the import of natural gas at a high price to meet the domestic shortfall adversely impacts the current account balance".

It asked the Oil Ministry to seek views of Attorney General of India on reopening of KG-D6 price which was in 2007 fixed at $4.2 per mmBtu for five years of production ending March 31, 2014.

In January, RIL wrote to the oil ministry and the Prime Minister's Office seeking a price revision, saying that the current price was "sub-market" compared with three times higher price being paid for imported gas (LNG).

The company had originally applied to the government for approval of a $4.3 per mmBtu price of KG-D6 for first three years of productions but the EGoM marginally lowered the rate and fixed it for first five years of production.

In the letter -- copies of which were also marked to Finance Minister Pranab Mukherjee, Power Minister Sushil Kumar Shinde, Planning Commission Deputy Chairman Montek Singh Ahluwalia and Pulok Chatterji, Principal Secretary to Prime Minister Manmohan Singh -- APP said any gas price increase would make the fuel unaffordable to the power sector.

Claiming that the price increase would go against the basic principle of the Gas Utilisation Policy, it said hike in rates was also against the Supreme Court judgment in the RIL-RNRL case, which had stated that the utilisation of gas should be in a manner to "Sub-serve the best interests of the country".

"Therefore, any move to increase gas price would make over 15,500 MW of existing gas based capacity and 9,500 MW of upcoming capacity unable to operate," Khurana said.

"This would result in stranded assets and NPAs or if the discoms are made to buy this expensive power it would increase the existing cash deficit and subsidy burden," he added.