Pooling of gas and coal on cards: Government plans to fuel up 91K MW of stuck power projects

NEW DELHI: After clarity on natural gas prices and an ordinance on coal, the government is set to decide on pooling of imported and domestic fuel prices to help stressed power stations with a combined capacity of 91,000 mw generate electricity that’s badly needed as India tries to revive its economy. The Cabinet Committee on Economic Affairs is likely to decide on pooling gas and coal prices at its meeting this week, sources said.

The proposals include a bailout package for power plants idling due to scarcity of domestic gas and a plan to meet the needs of coal-based units till 2017. Of the 24,148 mw gas-based projects set up at an investment of about Rs 1,50,000 crore, those that can generate about 16,000 mw aren’t running while the rest are operating at sub-optimal levels. The Supreme Court on September 24 cancelled 204 coal mine allotments of which 59 were to supply power plants with nearly 67,000 mw capacity. The 59 include 20 producing blocks supplying projects of more than 11,000 mw capacity. Plants that can produce another 7,200 mw have stalled as Coal India supplies have dried up.The government had on October 18 raised the price of gas from domestic fields by about 33% to $5.6 per unit from November 1.

Three days later, it said an ordinance would be issued to open coal to commercial mining by private firms and allot captive coal blocks to private companies through eauctions and on a nomination basis to government entities. The government now proposes to supply any additional gas produced in the country in the next four years to power stations along with imported liquefied natural gas. State-run GAIL India will be the pool operator and will supply the fuel to power stations at an average ‘pooled’ price of domestic and imported gas.

The electricity from the plants will be supplied to power distribution companies at Rs 5.5 per unit. The government also proposes to subsidise firms operating gasbased power stations from the National Clean Energy Fund (NCEF) made up of a cess collected from coal miners. After much deliberation, the fixed cost of the gas-based plants is planned to be capped at Rs 1.30 per unit of electricity that will allow the operating companies to meet financial obligations and prevent idle projects, totaling an investment of Rs 64,000 crore, from turning into non-performing assets.

The plan includes simplifying procedures for availing customs duty waivers on LNG and scrapping value-added tax and central sales tax collected by states. Gas transporters GAIL India and Reliance Gas Transportation Infrastructure Ltd will be asked to take a 20% cut in pipeline tariff, which will help them improve utilisation of pipelines. GAIL will also be asked to halve its marketing margin to $0.1 per million British thermal unit.

A separate plan to provide longterm coal supplies to developers of power plants that have had their attached coal mines cancelled by the apex court is also likely to be considered by the Union Cabinet this week. The power ministry proposes such supplies to captive block based power projects that have secured debt, placed equipment orders and acquired land.

The proposal will immediately benefit power plants of about 36,000 mw combined capacity that are ready or likely to be commissioned by March 2017. Under the proposal, power plants with a total capacity of 78,000 mw that have signed letters of assurance with Coal India will get 90% of their requirement. Fuel supplies have also been sought for plants that can generate up to 21,000 mw that are set to begin operations after 2017 and have letters of assurance from Coal India.

The ministry has sought 50% fuel supplies from Coal India for projects that do not have letters of assurance from the company but have signed power purchase agreements (PPAs) with states. If required, Coal India will supply imported coal to such projects after pooling prices with locally produced coal.