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Petroleum Ministry’s plan to hike gas price may hit power sector by Rs 46,360 crore per year

06 Jun 2013 Evaluate

The Petroleum Ministry in a note to the Cabinet Committee on Economic Affairs (CCEA) has proposed to price natural gas produced domestically as per a complex international hub and imported LNG based formula suggested by the Rangarajan Committee. As per the proposal, natural gas prices will increase by at least 60 per cent, resulting in more than doubling of electricity tariff for consumers and may hit power sector by Rs 46,360 crore per annum. 

As per the formula suggested by Rangarajan committee, the price of natural gas comes to $6.775 per million British thermal unit as against the current rate of $4.2 per mmBtu. 

The ministry has also proposed the revision in gas prices every quarter, by which electricity tariffs for consumers, would change once every three months. The revised rates would apply to state-owned gas producers immediately, while, for private gas producer like Reliance Industries it would be applicable from next due date or from April 1, 2014.

Further, the ministry note state 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. Presently, the cost of electricity generation at delivered price of $6.93 per mmBtu for RIL’s KG-D6 gas (base price plus taxes and transportation), comes to Rs 2.93 per unit.

Meanwhile, the power ministry is of the view that base price of domestic gas beyond $5 per mmBtu was unviable for power sector; generating electricity at Rs 6.40 per unit is not viable. Currently, India’s has 18,000 MW of gas-based power plant, 30 per cent of which are stranded for want of fuel. Another 1000 MW gas based power plants are at advanced stage of commissioning. 

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