Gas-based power plants: Future of Rs 60000 cr gas projects in jeopardy

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From: Financial Express By: Shivani Naik Published at: March 12, 2018
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In the nine years since natural gas was first discovered in the KG-D6 basin, the talk of priority allocation of natural gas for the power sector and 40% of India’s gas requirements being met from a single field has proven to be hot air! It was the hype around easy availability of natural gas that saw more than 40,000 MW of gas-based power plants come up between 2009 and 2014, with companies like Reliance Industries, GSPC, and ONGC outdoing one another to make announcements on big finds. However, drop in production from the KG D6 field was large enough to upset the applecart. The result: of the 40,000-MW installed capacity in the public and private sectors, around 15,000 MW is completely stranded today, while another 25,000 MW plants are operating at an average plant load factor (PLF) of 24%, as per the Ministry of Power. It is not just that gas-based power plants do not enjoy priority allocation of natural gas, as is the case with the fertiliser sector; they are neither in a position to use the costly imported liquefied natural gas (LNG), which would make recoveries difficult from cash-strapped state distribution companies. It’s a do-or-die situation gas-based power plants are facing, say industry watchers, notwithstanding the government’s target of increasing the share of natural gas in India’s primary energy mix to 15% from 7% at present.

Among the options on the table are the ministry ensuring allocation of gas from new discoveries made by the ONGC and diversion of the resource from non-core sectors like refining, petrochemicals and steel. The government could also look at revisiting the E-RLNG Scheme that provided subsidy support and tax exemptions on imported RLNG. The scheme was introduced for only two years given expectations of an improvement in gas supply and the power scenario in the country (better performing discoms, revision in tariff, etc). “The benefits of gas-based power projects and the thrust on renewables make it prudent to re-introduce the scheme for stranded gas-based power plants, until sufficient domestic gas is made available,” says Ashok Khurana, president, Power Producers Association of India. Failure to introduce such measures, he is categorical, would see the power plants going the NCLT way. Even under bankruptcy proceedings the plants are unlikely to find buyers till the scenario on fuel availability improves, he says. “Under such conditions I foresee the plants being liquidated; at a conservative estimate of Rs 4 crore/MW, the liquidation of 15,000 MW of assets would mean a hit of Rs 60,000 crore for companies and their lenders,” Khurana feels.

“We approached the ministry of power recently to brief it on the dire situation in the industry,” he adds. If there is a silver lining, it is in the ONGC indicating recently gas availability in certain KG Basin fields which could be ramped up to 20 MMSCMD in 2-3 years. Based on this, ONGC has floated an e-tender for sale of 2.5 MMSCMD of gas from KG basin –S1 & VA deepwater fields. The gas supplies are expected to commence on 1st April, 2018. Companies with stranded power plants agree the discovery could help reduce the constraints of gas availability. Speaking on the condition of anonymity, an official from one of the companies says, “With gas now available in KG basin fields, the government should consider allocating it to the stranded gas-based power plants, especially as the plants were conceived on the basis of gas projections from the KG basin.”

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