15-year KG gas pact for new power plants likely

The power ministry has proposed to amend the standard bidding document under the Electricity Act for all the forthcoming projects.The decision has been taken in light of new projects being allocated gas from private gas producing companies like Reliance Industries, a power ministry official close to the development said.It is for the first time that gas will be allocated from RIL’s KG basin fields to fresh power capacity. As of now, RIL only supplies to existing power plants with stranded capacity as per the government’s policy.“I will not be able to comment on the news but changes should be made from time to time in the fuel policy keeping the power sector and its growing demands in mind ” said Union power secretary P Umashankar.

The proposed changes, if accepted by the group of ministers panel, will come as a huge advantage to ADA group that is planning to develop new gas-based power plants and expand some of its existing power plants. All new gas-based power plants that will draw gas from RIL and other private gas producers will also benefit from these changes.The ministry, which is working on the changes, has proposed that gas supplies to greenfield projects should be for a minimum period of 15 years as opposed to the five-year contracts that are in place now. This will ensure steady and certainty in the fuel supply for the project and will help power companies raise debt easily.
Secondly, it is being proposed that power producers too should sign up supply contracts for 15 years in line with their gas supply contracts. Power projects typically have a life of almost 25 years and so it remains to be seen how plant operates in the last 10 years if the gas or fuel for the plant is not in place. This is a grey area that will need to be clarified.
“Not only Reliance power, but also NTPC and in fact any big developer will benefit from this change. Because projects will now not be stuck for gas allocation. The allocation should be for a little longer than 15 years” RV Shahi, former power secretary said. Since gas is sold in dollar terms like imported coal, the ministry is proposing that the fuel component in the power tariff should reflect in dollars. Put simply, consumers who buy power will have to budget for the exchange rate fluctuations in their power bills.“Our priority is to get gas for power plants at reasonable terms. This is for the benefit for the power sector” said the power ministry official.