June 5, 2013

Petroleum Ministry’s proposal to raise natural gas prices by at least 60 percent will result in more than doubling of electricity tariff and a whopping Rs. 46,360 crore per annum impact on power plants.

The Ministry in a note to the Cabinet Committee on Economic Affairs (CCEA) has proposed to price domestically produced natural gas as per a complex international hub and imported LNG based formula suggested by the Rangarajan Committee.

The price as per the formula in the current quarter comes to USD 6.775 per million British thermal unit as against the current rate of USD 4.2 per mmBtu.

The Ministry, sources said, in the note states that the variable cost of generating electricity at the 2014 gas prices would be around Rs. 5.40 per kilowatt hour (per unit), taking the total cost of generation to around Rs. 6.40 per unit.

The cost of electricity generation at delivered price of USD 6.93 per mmBtu for RIL’s KG-D6 gas (base price plus taxes and transportation), comes to Rs. 2.93 per unit, they said adding the note incorporates Power Ministry’s comments that the generating electricity at Rs. 6.40 per unit is not viable.

The note states that the nation has 18,000 MW of gas-based power plant, 30 percent of which are stranded for want of fuel. Another 1000 MW gas based power plants are at advanced stage of commissioning.

With the cost of every dollar increase in gas price assuming that the delivered price increases to USD 1.3 per mmBtu, the impact on power sector will be about Rs. 6,450 crore, the note states. At 2014 gas price, the impact would be Rs. 46,360 crore per annum.