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No consensus on gas pooling

ARVIND JAYARAM
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Developers of new power projects feel that pooled gas should be made available to both existing and commissioned plants.

The debate on pooling of gas supplied to power generation plants in the country has divided power producers in the country into two camps.

The public sector power producers, who were set up earlier and enjoy the lion's share of domestic gas allocation, are against the move. But the developers of new power projects have suggested that whatever domestic gas is available should be pooled with imported RLNG.

The government is also split on the issue. The Petroleum Ministry has argued that gas pooling is the only way to ensure that no capacities in the country are left stranded for want of fuel.

But the Power Ministry has warned that such a pool can only be achieved with an optimal balance of domestic gas and RLNG.

At the centre of the issue is the projected decline in production of natural gas from Reliance Industries' KG-D6 field. KG-D6 gas supply is projected to fall to 25 mmscmd in 2013 and further reduce to 23 mmscmd in 2014, as per Petroleum Ministry estimates.

Dissent note

The reduced supply from KG-D6 will not affect old plants, as they have been allocated around 17-18 million cubic metres per day of Administered Price Mechanism (APM) gas. As such, they were only banking on KG-D6 to top up their requirement.

Pooling the cost of their gas with costlier RLNG would drive up costs of public sector power plants. Even among the newer plants that have been commissioned and receiving KG-D6 gas, most are of the view that sourcing of RLNG should be left to them. One of the primary contentions of the older power plants for the non-workability of the price pooling mechanism is that all of them have concluded power purchase agreements (PPA) with distribution companies (discoms) and some of these agreements do not provide for cost escalation.

New projects

But the developers of new power projects which are in advanced stages of construction or are awaiting gas for testing and commissioning are in favour of this move.

They have argued this pooled gas should be made available to both existing as well as commissioned plants on a pro-rata basis to ensure a level playing field.

They asserted that the mechanism was necessary to avoid stranding of capacity and preserve investments already made. They also said maintaining the status quo only benefited the old existing plants, which were about 20 per cent less efficient than new power plants.

Producers favouring gas pooling have suggested that domestic gas allocated to non-core and captive sector units should be withdrawn and used for commissioning power plants that are ready.

Furthermore, any reduction in domestic gas supply should be on a pro-rata basis for all sectors, including fertilisers, to avoid nil supply of KG-D6 gas to the power sector. Since new plants do not have power purchase agreements, without pooling, the plants would have to rely solely on RLNG, which would be unviable.

It has been suggested that for any pooling to work out, regulatory support and the willingness of discoms to buy a certain percentage of costly power from gas-based stations is required.

In this regard, those in favour of the proposal have suggested making it mandatory for utilities to sell a certain quantum of gas-based power in their portfolio, similar to the existing Renewable Purchase Obligation. Alternatively, the utilities could allow the gas-based producers to sell directly to industrial and commercial customers with demand of over 1 MW under the new open access regulation.

What power producers say

Tata Power: Tata Power appears comfortably placed with regard to gas sourcing. Its Trombay plant was supplied 0.91 mmscmd of domestic gas in January, 2012, though it needs just 0.86 mmscmd to operate at a 90 per cent plant load factor.

The company is already pooling domestic APM gas and RLNG to operate the plant. The company said any change in fuel supply will require revoking power purchase agreements with discoms and regulatory re-approval

GMR and LANCO: These companies are in favour of gas pooling. They have said that once a decision is taken for pooling of gas, the lead time to import RLNG and supply gas would be more than one year, by which time all related issues could get addressed.

Lanco's Kondapalli plant was supplied 2.02 mmscmd of domestic gas in January, though it required 3.44 mmscmd to operate at a 90 per cent plant load factor.

The gas was supplied by GAIL (India) Ltd and Reliance Industries Ltd based on a long term contract. Its Tanjore plant received 0.39 mmscmd of gas against the required 0.48 mmscmd under a long-term contract with GAIL.

GMR's Kakinada plant was supplied 0.53 mmscmd, though it required 1.06 mmscmd. Its Vemagiri plant received 0.92 mmscmd from GAIL, against the 90 per cent PLF requirement of 1.78 mmscmd.

Reliance Energy Limited: REL states that gas pooling to all the existing and upcoming power plants is the only solution to ensure adequate gas for the power sector. The company's 2,400-MW plant at Samalkot is ready for commissioning, for which it will require significant quantities of gas. However, it has not yet been allocated supplies.

arvind.jayaram@thehindu.co.in

(This article was published on June 16, 2012)
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