Cos may shift to alternative fuel

REDUCING THE SUBSIDY BURDEN

Companies which use diesel to run their backup generators say they would shift to alternative fuels if the government decides to adopt dual pricing, where these firms would be charged higher and retail customers would continue to get subsidised fuel.

Corporations in many states are forced to use their own diesel-powered generators as state electricity boards are unable to supply uninterrupted power due to demand far exceeding electricity generation.

Even at the current subsidised price, manufacturing units claim it costs two to three times more to run a diesel-powered genset against what they pay to electricity boards.

“If diesel prices go up, we would shift to other fuel options,” said P K Jain, former president of PHD Chamber of Commerce and Industries and also the chairman of Gurgaon-based The Malt Company (India) Ltd, which uses diesel gensets to produce captive power.

“But if we shift to other fuels, the price of that fuel would go up and ultimately it’s the consumer who is going to pay higher,” he added.

At present, around 25,000 Mw is generated through captive plants in the country, which is about 17 per cent of India’s total installed power generation capacity of 145,000 Mw. A bulk of this captive power — about 80 per cent — is generated through diesel gensets and is used to combat power shortages.

Therefore, the subsidised diesel meant for the transport sector has increasingly found its way to sectors like power and fuelling demand for the commodity.

The most recent increase in diesel prices coupled by a rise in demand has resulted in a 12-15 per cent spurt in the fuel bills of captive power generators using diesel. The government recently increased the retail price of diesel by Rs 3 per litre.

“The increase in the price of diesel has caused a 12-15 per cent increase in our fuel bills. It is not possible to absorb the high cost. We have to rely on diesel for power generation because we are not getting enough power supply from the state electricity board,” said Jain.

The cost of captive power generation by using diesel has risen up to Rs 11-12 per unit, which is significantly higher than Rs 4.50 per unit, the rate at which his company is supplied power by the state electricity board, reducing the profit margins, he added. His is one of the many companies in the area which rely on diesel-fired captive gensets in Haryana.

Textile exporters at Tirupur in Tamil Nadu are also depending on diesel-powered gensets to tide over daily power outages of four hours. It costs around Rs 10 per unit of power generated if diesel-powered captive genset is used; nearly 40 per cent more than what they would pay to the Tamil Nadu Electricity Board.

Earlier this month, Petroleum Minister Murli Deora had also said “there is a 23-24 per cent unforeseen increase in demand because it is being used in power generation”.

The rise in demand for diesel has fuelled to a large extent by its supply to power sector companies.

“With the prices of crude oil sky-rocketing, power generators do not have much choice. In near future, if crude settles down to $80-100 per barrel, then the market will become fair for diesel too,” said a senior analyst with an accounting and consulting firm.

The higher diesel prices have affected not only captive power generators but also bigger power producers like NTPC Ltd.