Gas-based power plants forego subsidy in reverse auction

In an unforeseen turn of events, the gas-based power producers placed near zero bids to procure subsidised RLNG from the government.

This was the third round of reverse e-auction process for power plants to avail themselves of subsidy to buy costly imported gas – Regasified LNG (RLNG). This involves reverse bid for the subsidy amount to come from Power System Development Fund (PSDF) to purchase the RLNG. The eligible bidders indicated the total incremental electricity they would generate using the e-bid RLNG. The companies also quoted the subsidy they require in order to ensure the net purchase price for the distribution companies to buy that power, without exceeding the target PLF.

However on late evening Tuesday during the third such bidding, the power producers did not indicate any subsidy amount. “The companies were ready to buy gas at the floor price suggested by government,” said a senior power ministry official. He did not disclose the floor price as the bidding is under review.

The officials said the ministry of power would review the process as no one envisaged that financially sick gas powered plants would forego subsidy in the third round of auction.

Sources said the committee is likely to allow negative and zero bids. The decision would come on Wednesday. If it’s allowed, the government would save on the PSDF amount given to support the gas based power plants. The amount was calculated to be around Rs 1,600 crore.

The second round of the revival plan for gas based power plants received bids from power plants with cumulative installed capacity of 8262.08 Mw last year in August. This involved government support of Rs 1590.09 crore from the PSDF.

In the first round of auctions in June 2015, 14 gas based power plants with cumulative capacity of 8,100 Mw had bid. The successful bidders include power plants mostly from the southern region.

Under the new gas mechanism announced last year, every stakeholder in the supply chain would have to forego a part of their returns on operations. While the central government would give up the service tax it levies on gas sourcing, the power plant operators would forego return on equity. GAIL would source the imported gas and along with Gujarat State Petronet Limited would 50% of their transmission rate and 75% of marketing margin in supplying imported RLNG.

The lead banker to these plants would ensure all receipts of money would be utilised only for payments towards the variable cost of generation (fuel cost) and the operation and maintenance expenses in accordance with regulatory guidelines. Debt servicing would be made after capping fixed cost.

Of the 24,150 Mw of gas grid-connected power generation capacity in the country, 14,305 Mw has no supply of domestic gas. On this front, an investment of about Rs 60,000 crore is at the threshold of becoming a non-performing asset. The remaining capacity (9,845 Mw), involving an investment of about Rs 40,000 crore, is working at a sub-optimal level, based on the limited quantity of domestic gas in India.