Union Power Ministry did not approve of Gas Price Pooling Mechanism within the Power Sector

The Union Power Ministry did not approve of the gas price pooling mechanism within the power sector as proposed by the Ministry of Petroleum and Natural Gas. The Power Ministry sent a note to the Prime Ministers' Office (PMO) in response to the demand by the Petroleum Ministry and the Association of Power Producers (APP). In the note the Power Ministry deemed the pooling price mechanism with 7 mmscmd of additional RLNG to be non-workable.

As per the ministry the pool proposed to be formed could only envisage only 20-25 per cent of RLNG with 75-80 per cent of domestic gas. The pool could only be used for future allocation of gas without affecting the pre-allocation of existing capacities.
It was necessary to de-allocate the domestic gas, allocated to the non-core sector and then allocate it to the power plants. Also it was felt that it is essential to encourage the new power plants ready for commissioning/under construction to source spot RLNG as well as sell the power at merchant rates till additional domestic gas is made available.

The Petroleum Ministry specifically stated that no new power plants will be considered for gas allocation till 2015-16. The Ministry, in its presentation to the PMO on gas price pooling also mentioned that the landed price of RLNG would be around $22 per mmscmd, which will result in the cost of electricity to be Rs.9.

Until 2013-14, only around 7 mmscmd of RLNG is expected to be imported due to infrastructure constraints. It was therefore proposed that the present allocation for the existing plants would not be changed. Incremental RLNG is to be allotted to old/ new plants as advised by the Power Ministry.

Small additional charge will have to be levied on the pooled price to provide for increased subsidy to Northeastern States and also to keep a cushion for price/exchange rate fluctuations.