Power, gas utility stocks gain after CCEA nod for supply of cheap LNG to stranded power plants

Shares of nine power producing and gas utility and distribution companies rose by 0.34% to 4.82% at 13:40 IST on BSE after the Cabinet Committee on Economic Affairs approved innovative mechanism for utilising stranded gas based power capacity.

Meanwhile, the S&P BSE Sensex was down 324.88 points or 1.16% at 27,786.95.

Among power generation companies, Torrent Power (up 3.57%), GVK Power & Infrastructure (up 2.04%), Adani Power (up 0.75%), Reliance Infrastructure (up 0.87%) and Lanco Infratech (up 3.08%) gained. JSW Energy (down 0.53%), NTPC (down 0.85%), and Reliance Power (down 0.72%) declined.

Tata Power Company rose 0.52% after the company said it has entered into a share purchase agreement with Tata Africa Holdings (SA) (Pty) Ltd. for formalizing the acquisition of their 50% shareholding in Itezhi Tezhi Power Corporation Ltd (ITPC).

Among gas utilities and distribution companies, Gail (India) (up 0.34%), Petronet LNG (up 1.14%), and Gujarat State Petronet (up 4.82%) gained. Indraprastha Gas (down 0.19%) and Gujarat Gas Company (down 0.43%) declined.

Among PSU bank stocks, State Bank of India (SBI) (down 0.79%), Bank of India (down 0.32%), Bank of Baroda (down 0.3%), Punjab National Bank (down 0.58%) Syndicate Bank (down 0.97%), Andhra Bank (down 0.89%), Oriental Bank of Commerce (down 1.85%), and Indian Bank (down 2.73%), declined. Canara Bank (up 0.07%), Union Bank of India (up 0.39%), and Dena Bank (up 1.26%) gained.

Among private sector banks, HDFC Bank (down 2%), ICICI Bank (down 1.97%), Yes Bank (down 0.68%), Federal Bank (down 2.53%), Kotak Mahindra Bank (down 0.66%) and Axis Bank (down 0.69%), declined. IndusInd Bank rose 0.61%.

The Cabinet Committee on Economic Affairs, chaired by the Prime Minister Narendra Modi, yesterday, 25 March 2015, has approved a major policy intervention, through an innovative mechanism, to revive and improve utilization of the stranded gas based power generation capacity in the country. This gas based power generation capacity has been lying idle or under-utilized due to shortfall in the production of domestic natural gas in the country.

In order to revive these stranded gas based plants, the mechanism envisages importing Regasified Liquified Natural Gas (RLNG) for supply to these plants so that they can generate power. The mechanism also envisages sacrifices to be made collectively by all stakeholders, including the Central and State Governments by way of exemptions from certain applicable taxes and levies on the incremental RLNG being imported for the purpose. Besides, gas transporters and re-gasification terminals have agreed to reduce their transportation tariff, marketing margin and re-gasification charges on the incremental RLNG.

Power developers would completely forego the return on their equity. The Government of India also proposes to provide support to Discoms from the Power System Development Fund (PSDF) through a transparent reverse e-bidding process. This will make the cost of power affordable. With this arrangement, electricity generation in the country would be enhanced significantly by around 79 billion units, valued at about Rs 42000 crore. The additional generation would help light up many unconnected households in the country, besides benefitting the public at large, including farmers and poorer sections of the society who have limited access to electricity. This initiative is another key step towards achieving this Government's commitment of 24X7 power supply to all.

This decision will also help improve grid stability and safety, as gas based plants are ideal for being used as spinning reserve, and for meeting peaking power requirements, as they can be started and shut down at very short notice. Grid collapse of the kind that happened in July, 2012, will be avoided with this measure. Besides, it can support renewable balancing power requirements and enable grid integration of renewable energy. This gains importance especially in the context of India's aspiration to rapidly scale up renewable generation. Gas based power is also environment friendly and much less polluting than coal based generation.

Reviving these gas based power plants will go a long way in making peak load shortages in the summer months a thing of the past. Many of the stranded gas based power projects are located in the Southern region which is power deficit. With their revival, power shortage in the Southern region will be minimized significantly.

It is felt that the revival of stranded gas based capacity would ameliorate stress on the banking sector. This will kickstart growth and have a multiplier effect on the economy. It would also restore investors' confidence in the power sector. The mechanism will also result in optimal use of gas infrastructure like gas pipelines and re-gasification capacities in the country, which are currently underutilized.

Out of 24,150 megawatts (MW) gas grid connected power generation capacity in the country, 14,305 MW of capacity has currently no supply of domestic gas and may be considered as stranded. This represents an investment of over Rs 60000 crore which is at the threshold of becoming Non Performing Assets (NPAs). The balance capacity of 9,845 MW involving an investment of over Rs 40000 crore is also working at a sub optimal level based on the limited quantity of domestic gas in the country.

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