Discoms may be paid for costlier gas

Subsidy regime planned only for APM gas users

The new Union power minister might be entrusted with an unfinished job — insulating distribution companies from the rise in power generation costs that might arise due to a higher gas price.

According to a proposal by the ministry, a two-year subsidy plan will compensate distribution companies for the purchase of power worth more than Rs 5 a unit this year, and Rs 5.5 a unit from 2015-16.

The subsidy will, however, be limited to generation based on gas from nominated fields. The package will benefit gas-based power plants, with a combined generation capacity of 10,382 Mw. These plants supply power under the older cost-plus regime.

“Since we expect gas production to increase from 2016, the subsidy mechanism will be available only for two years,” said a government official. Besides direct subsidy, the package will include extending the commissioning date of projects by a year, capitalisation, and extending a moratorium on interest repayment. The subsidy outgo for the first year would be Rs 3,621 crore, and Rs 2,056 crore for 2015-16, the official said. The calculations are based on a gas price of $8.4 per million British thermal units (mBtu).

Though the proposal has been finalised by the ministry, a decision will depend on the notification of a new gas price and a Cabinet nod for the package. Based on the pricing formula suggested by a panel headed by C Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, the price of domestic natural gas is expected to be slightly more than $8 per mBtu. Based on this, the price of power per unit might rise Rs 1-2.

While the guidelines for pricing natural gas, to be applicable from April 1, were notified in January, the Election Commission had barred the petroleum ministry from notifying the new domestic gas price, due to the model code of conduct for the Lok Sabha elections.

Earlier, the power ministry had planned to provide relief to stranded gas-based power generators on the pipeline grid — pooled gas was to be pumped into pipelines so that it could be accessed by the plants on that grid. The gas pooling was to cover only existing projects and those under construction (with power generating capacity of 26,300 Mw). Under the proposal, government-controlled GAIL India was to be the pool operator.

SUBSIDY PLAN FOR DISCOMS

• Two-year subsidy plan to compensate distribution companies
• Subsidy to be given for power above Rs 5 a unit this year
• From next year, subsidy will cover power cost above Rs 5.50 a unit
• Package to benefit 10,382-Mw power generation using APM gas
• Assuming $8.4 per unit gas price, subsidy outgo Rs 3,621 cr for the first year, Rs 2056 crore for 2015-16