GAIL asked to assured gas supply to power projects

In a significant development, the government has asked state-run gas utility GAIL India to extend 'comfort letters' assuring fuel supplies to upcoming gas-based power projects so that the projects get financing.

As per the new dispensation, GAIL would assure gas supplies when the projects become operational but the price would be the prevalent market rates, top sources said.

Some developers had said they could not begin work on projects in the absence of a bankable gas supply contract and the New arrangement would help them get finances from banks and financial institutions.

Upon completion of the power plants, the government will allocate fuel to them from domestic fields like those of Reliance Industries' eastern offshore KG-D6. In case domestic gas was not available, GAIL would import liquefied natural gas (LNG) and supply it to them at market rates.

 

"We want to ensure that the power projects are not stranded for want of gas supply contracts. Once they are built, supplies would be ensured either from domestic fields or by way of imports," a source said.

The developer would not suffer any financial loss in case it gets imported LNG as the entire fuel cost is passed through as per electricity regulations. The term market price was inserted in the comfort letters so as to accommodate both domestic as well as imported-LNG rates.