The Planning Commission has said that the gas price pooling mechanism is not feasible in the current economic scenario, as it will result in higher electricity cost as well as increase the subsidy bill.
This view is opposed to what companies such as NTPC, Lanco, GMR, GVK, Torrent, Reliance Power and Essar Power, the Ministry for Power as well as the Prime Minister’s Office were pitching for.
“We cannot justify energy subsidy,” a Senior Planning Commission official told
The Planning Commission feels that even if the Government shells out hefty subsidy to facilitate gas pooling, the electricity produced would be expensive – at more than Rs 5.50 a unit – which would not get buyers. According to Power Ministry’s proposal, pooling would require Rs 24,339 crore worth of subsidies for three years starting 2013-14.
“Energy subsidies are not coming down and there is no room for more subsidies,” the official added.
For instance, in 2013-14, it is proposed that power sector will be allocated 1.125 million standard cubic meters a day (mmscmd) of domestic gas. This will be clubbed with 5 mmscmd of imported gas, which would make the weighted average price of gas at $11.43 per million British thermal unit (mmBtu). It would also mean the cost of electricity generation will more than double to Rs 10.47 a unit.
The Power Ministry is mooting a tariff of Rs 5.50 a unit with the difference to be subsidised. This subsidy works out to Rs 2,498 crore for 2013-14.
Similarly, for 2014-15, if 12 mmscmd of imported gas is used, the subsidy stands at Rs 10,992 crore. In 2015-16, the subsidy would be Rs 10,849 crore. It said that the discoms would not be in a position to sign power purchase agreements. This would force power producers to sell in the spot market, which caters to less than two per cent of the country’s electricity market.
Finance Minister P. Chidambaram has maintained that fiscal deficit target of 4.8 per cent of GDP is a “red line and the red line will not be crossed”. Higher subsidy may breach this deficit target.
A Power Ministry official said, “The Ministry would like to take the proposal to CCEA this month.”