Govt’s move to hike gas price may result in rise in fuel cost

The rise would translate into an increase of 9 paise per unit on the total power generation.

Written by PTI | Mumbai | Published: June 27, 2013 7:00 pm

Government’s proposal to increase domestic gas prices to USD 6.77 per unit will result in 56 per cent rise in fuel cost to Rs 3.41 per unit for natural gas-based power generation,leading to an additional burden on consumers and utilities,India Ratings said today.

The rise would translate into an increase of 9 paise per unit on the total power generation of 912 billion units,leading to an additional burden of Rs 7,800 crore towards gas cost on the gas-based power generation of 65 billion units.

“The burden,also contributed by the fall in rupee,would ultimately have to be either recovered from consumers or borne by state power utilities,” India Ratings said in a release.

If gas prices were to increase from the current levels,gas-based power plants would further decline in the merit order dispatch schedule,thus raising off-take risks,it said.

“The benchmark cost of generation from a domestic gas-based power plant could be 53 per cent higher at Rs 5.41 per unit compared with a coal fired domestic plant operating at benchmark parameters,” India Ratings said.

The note for the Cabinet Committee on Economic Affairs (CCEA) has proposed new gas price between USD 6.77 and 10.84 per unit as calculated by different government departments after tweaking the Rangarajan formula.

The Rangarajan panel has suggested a simple average of producers’ net back price for Indian imports and world average producers’ net back price,thus arriving at a price of USD 8.8 per unit.

The Planning Commission,on the other hand,has suggested a price of USD 10.8 per unit.

The government has also appointed a committee headed by Vijay Kelkar to work out a road map for switchover to market determined gas pricing at the end of 12th Plan. The Kelkar committee is expected to submit its report to by September.

India Ratings further said the recent moves to allow pass-through for price hike in imported coal and higher fixed cost per unit of newly commissioned plants due to higher capex costs are likely to increase power purchase costs for distribution companies.

“As many state discoms implemented tariff hikes in 2012 and 2013,the capability of discoms to pass on price increases to consumers would remain limited,” it said.

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