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APP asks power ministry to reintroduce gas subsidy scheme to revive power plants

Updated : December 21, 2020 03:22 PM IST

The Association of Power Producers (APP) has urged the government to reintroduce gas subsidy scheme for revival of gas-based electricity generation projects in the country. The body has also sought dedicated allocation or auction of gas for power sector and inclusion of natural gas under the goods and services tax (GST) regime to maintain 5 percent tax across the country.

In a letter shot off to Power Minister R K Singh last week, APP asked for reintroduction of a modified E-RLNG (electronic auction of subsidy to buy regasified liquefied natural gas) scheme to improve the PLF (plant load factor or capacity utilisation) of stressed gas- based power generation plants.

It pointed out that due to the limited supply of gas, these power plants are operating at an extremely low PLF of 22 percent. In order to revive the stranded gas-based assets, the central government had introduced E-RLNG scheme in 2015. Taking into consideration the high price of imported gas due to high taxation (VAT) and transportation tariff, the scheme recommended a haircut to be taken by all the stakeholders in order to make imported gas competitive with other sources of fuel.

This scheme had helped improve the PLF of many stressed gas-based plants, but it was discontinued after two years leading to the return of stress and uncertainty for the gas-based assets, the body said. ”Now that global gas prices are again on the upswing, we recommend the reintroduction of a modified E- RLNG scheme for the overall benefit of the sector, which was the initial idea behind the introduction of the E-RLNG scheme,” APP said.

According to the recommendation of the body, the modified scheme can have exemptions like 50 percent reduction on pipeline tariff charges, 75 percent reduction on marketing margin and 50 percent reduction on regasification charges. APP pointed out,” It may be recalled that many pipeline operators were willing to provide 50 percent reduction in their tariff since most of the pipeline utilization was not more than 40 to 45 percent.”

It may also be noted that the reintroduction of this scheme would be in line with the recommendations of the High-Level Empowered Committee (HLEC) constituted in 2018 to look into the issues of stressed power plants. The committee had suggested that the power ministry and petroleum and natural gas ministry may jointly frame a scheme for revival of gas-based power plant on the lines of earlier e-bid RLNG scheme (supported by PSDF-power system development fund), it added.

APP has also asked for a separate window for the allocation of gas to power plants. Natural gas allocation/auction should be done similar to coal allocation, in which a special bucket is reserved for the power sector, it demanded. ”Power sector is a regulated sector and it desperately needs additional domestic gas allocation/auction in view of the dwindling past supply to the power sector. ”

The additional 30 MMSCMD (million standard cubic meters per day ) of domestic natural gas to be available by FY 2023 from KG basin should have some quantity earmarked for the power sector plants which have no gas presently, on priority basis to revive and operationalize them in long term,” the body said. The domestic gas that would be produced can be allocated through a bidding route, but of the total gas being bid, there should be a special bucket or a specific quantity solely for the power sector as the sector cannot compete with other non-regulated industries, it suggested.

Natural gas is currently taxed under VAT (value-added tax) regime with VAT rates ranging from as low as 3 percent to as high as 25 percent across different states. APP is of the view that such high VAT rates result in restrictive usage of natural gas and are detrimental to the government’s vision of increasing the share of gas in India’s energy sources.

Further, it stated that the VAT on domestic gas is completely incongruous with the tax levied on coal. For instance, it said that in contrast to gas, coal is taxed under the GST regime at 5 per cent. Further, as natural gas is not under the ambit of GST, there is no input tax credit available. The generators are unable to claim the benefit of tax credit on VAT paid on purchases of natural gas. ”If natural gas is brought under GST it would help companies in setting off tax that they paid on input. Therefore, if natural gas is brought under the GST regime, it would remove the cascading impact of taxes and lead to a reduction in input cost,” it added.

The majority of the gas-based plants in India are struggling at present. The current installed capacity of gas-based plants in India is around 25 GW, of which around 12 GW are under stress. Of these 12 GW of stressed plants, around 5.60 GW have had absolutely no gas supplied to them in 2019-20 and 6.16 GW of plants have had limited gas supplies in that fiscal year.

The gas-based plants have fixed cost as low as Rs one per kWh and can result in tremendous cost savings if they are operationalized and power is procured from them as opposed to these Central Sector plants that have an extremely high tariff. As per the APP estimates, operationalizing gas-based assets can cut down CO2 emissions by 74 million metric tonnes.

APP asks power ministry to reintroduce gas subsidy scheme to revive power plants

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