Bailout for gas-based power plants on the anvil

The government is considering a bailout package for gas-based power plants that includes ensuring that cash-strapped state power distribution companies continue to buy electricity from them after a scheduled increase in price of the fuel kicks in on 1 April, making available power from plants that are idling for want of the fuel, and a new repayment plan for a few other idle power plants, documents reviewed by Mint show.

The plan, which will also revive the Dabhol plant of Ratnagiri Gas and Power Pvt. Ltd (RGPPL), will affect plants generating around 19,000 megawatts (MW) of power, and cost around Rs.5,677 crore, the amount of subsidy that will be given to the state distribution utilities to pay for costlier power.

The plan will be put up for the approval of the cabinet committee for economic affairs (CCEA), according to a government official, who spoke on condition of anonymity.

The plan has three parts.

The first affects 10,382MW of power generated by gas plants powered by fuel under the so-called administered price mechanism. These plants are currently operating at 43.4% of their capacity, and a 1 April increase in price of gas to $8 per million British thermal units (mBtu) from the current level of $4.2-5.73 per mBtu will see the cost of power they buy rising to Rs.7 a unit.

The government proposes to cushion the impact of this tariff increase on the distribution utilities. It will make good any excess burden that these companies have to incur in purchase of electricity from these projects. The plan specifies a cutoff price of Rs.5 per unit and Rs.5.50 per unit for 2014-15 and 2015-16 respectively; anything above this will be offset through the subsidy.

This is expected to cost the exchequer Rs.3,621 crore in 2014-15 and Rs.2,056 crore in 2015-16, money that will be paid directly to the utilities. The government hopes the domestic availability of gas will improve by then.

The second part relates to 6,996.5MW of capacity, including the 1,940MW Dabhol project, that were allotted gas from Reliance Industries Ltd’s D6 block. To prevent the Dabhol project from becoming a non-performing asset (NPA), all additional gas from the New Exploration Licensing Policy (Nelp) blocks in the next fiscal, expected to be to the tune of 3.95 million standard cubic metres per day (mscmd), is to be allocated to RGPPL .

In 2015-16, the 5.78 mscmd of additional expected gas (over and above 3.95 mscmd) will be allocated to the remaining projects. In addition, all these power plants have been allowed to procure imported liquefied natural gas (LNG) and sell power directly to buyers at higher prices. The plan also envisages these plants receiving new loans from Power Finance Corp. Ltd(PFC).

The Dabhol plant requires 9.7 mscmd of gas, but has been allocated 8.5 mscmd by a panel of ministers, of which it receives only 0.9 mscmd. State-run NTPC Ltd, which owns a 32.86% stake in RGPPL, has warned its parent, the power ministry, that its investment in RGPPL will likely have to be written off—a significant loss of money and face.

India has a power generation capacity of 233,930MW, of which 18,964MW is fuelled by gas. For these projects to operate at a plant load factor (PLF)—a measure of average capacity utilization—of 70%, a supply of 71.7 mscmd of gas is required. However, the total gas supply available to these projects was 26.13 mscmd, resulting in a PLF of 25.6%.

“This will improve viability of existing gas-based stations with their limited domestic gas supply. This increased gas-based power generation would have a multiplier effect on the economy and would provide environment-friendly power,” according to the documents reviewed by Mint.

The third part of the plan deals with gas-fuelled power projects with an aggregate capacity of 9,322.5MW that have been commissioned or are close to being so. The government’s proposal is to provide repayment concessions to them.

“We are trying to find a solution within the constraints,” said a top power ministry official aware of the bailout package who didn’t want to be identified.

Mint reported on 20 January that the government was evaluating sops to power plants that would also bring relief to banks and financial institutions that have extended loans to them.

These concessions include extension of commercial operation date by a year, a move that helps debt repayments be deferred as they normally begin after this deadline.

Other sops include providing an additional three years’ moratorium on repayment along with the waiver of penal interest.

The plan also involved “full refinancing of rupee loan with ECB (external commercial borrowing) subject to overall cap ($15 billion) on ECB borrowings and project companies hedging forex risk”. Currently, refinancing of rupee loans is capped at 40%. The banks are also to extend the trade credit (letters of credit/guarantee) for additional two years over and above the current practice of three years. In addition, to improve the hedging market, a special window for ECB hedging through the Reserve Bank of India may be created for the entire term (around 12 years) of the power project loans.

The projects mentioned in the third part of the plan can also procure LNG and sell the power directly to buyers at the higher price on the lines of merchant tariff and will be eligible for further loans from PFC.

Bad loans to the power sector accounted for 20.21% of the total bad loans of Rs.11,409 crore to the infrastructure sector at the end of 2012-13. As on 31 March 2012, banks had loaned Rs.4,03,822 crore to the power sector.

The new package comes in the backdrop of the earlier proposal for gas pooling being dropped.

“The finance ministry didn’t agree to the pooling proposal,” said the first government official quoted above.

The government has been working on a slew of measures to bring relief to the gas-fuelled projects, including the so-called peaking power policy expected to provide for up to five-year contracts and a pass-through of fuel price increases to help these projects become economically viable.

Source : indianpowersector.com