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Under pressure
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New Delhi, Feb. 3: The power sector will be hit hard if the government accepts the Rangarajan panel’s recommendations on gas price revision, which could nearly double the price of natural gas produced by state-run ONGC and Oil India to $8-$8.5 per million British thermal unit (mBtu).
The gas-starved sector will have to shell out an additional Rs 7,200 crore if the new prices come into effect.
“Since the power sector receives over 30 million standard cubic meters per day from various sources, the additional cost on account of this is likely to add up to around Rs 7,200 crore each year,” Ashok Khurana, director-general of the Association of Power Producers, said.
According to Khurana, “As the committee’s recommendations are likely to increase prices substantially, we believe a clear roadmap should be laid out to moderate the impact and increase the availability of gas to the power sector.”
The Rangarajan panel has recommended that the price of natural gas should be based on an average of the fuel’s prices in North America, Europe and Japan and the cost of imported liquefied natural gas (LNG).
“Since Japan’s LNG import price has historically been much higher than the global market, this will distort domestic gas pricing. In order to moderate this, the Japanese import rate may be removed from the hub prices. This will greatly moderate prices and can be considered,” the power producers’ association said.
The oil ministry, which has moved a cabinet note, wants the new pricing norms to come into force from this year on all domestically produced gas barring cases where prices are either governed by a definite formula prescribed in the production-sharing contract or where the Centre had fixed a tenure for the same.
Officials said the new price would apply to all gas blocks other than Reliance’s in the Krishna-Godavari basin.
Most prices are decided on a “bid-based market discovery mechanism or fixed with reference to some other prevailing price”.
The clauses in the cabinet note will not only make Reliance ineligible for any hike before April 2014 but also require the company to seek the long-pending approval for revising the price of $4.2 per mBtu.
The country has 15 different rates for natural gas, ranging from $2.52 per mBtu to $6.77 per mBtu. In contrast, imported LNG costs up to $15 per mBtu.
According to the Central Electricity Authority, the total gas-based capacity in the country is about 18,903MW. Gas available to the power sector is only 55 million metric standard cubic meter per day (mmscmd), which can cater to about 10,000MW.
According to the 12th Five-year Plan (2012-17), the demand for gas will increase to 286 mmscmd this fiscal from 194 mmscmd in 2011-12.
By 2016-17, this is expected to grow to 466 mmscmd. Domestic production will rise to 232 mmscmd by 2016-17 from 143 mmscmd in 2012-13.
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