New Delhi: Rajnish Kumar, the Chairman of State Bank of India, the country’s largest public sector lender, has said that there is no future of gas based power plants in the country and the bank may have to write-off its investments in the sector. He was replying to a question on the future of gas based power plants in the country, posed by the Parliamentary Standing Committee on Energy.
“For gas-based power plants, honestly, if I have to submit, there seems to be no solution. It is because even when the gas was at around 2½ dollars, even then these plants had viability issue. When these plants were set up, the underlying assumption was that the domestic gas from the Kaveri Basin will be available at a cheap price. Based on that, all these investment decisions were taken,” Kumar told the Parliamentary panel.
His comments are part of the committee’s latest report on Stressed Non-Performing Assets in Gas Based Power Plants tabled in Lok Sabha today. Kumar also said an earlier subsidy scheme using the Power System Development Fund (PSDF) to help gas-based power plants did not have the desired impact and investments in the gas-based power plant sector may have to be written off.
“Even last time when we were trying to find out a solution, a scheme came out in 2015 from the Power Ministry where they gave some subsidies from the PSDF. There was a period when the gas plants did not avail that benefit. It was because at that time crude prices went almost below 30 dollars and import rate gas became viable for these plants. Even with a lot of concessions from the Central Government and the State Governments, the plants could operate at around 30 per cent PLF,” Kumar said.
He also said that, therefore, in the current scenario when the gas price is so high and when there are constraints in the supply of domestic gas, it seems that as if we are “groping in the dark. There is no other solution. We have to write off this investment.”
The panel in its observations said: “The Committee are dismayed to note that State Bank of India, the largest lender in the county, does not have any solution regarding these stranded plants and wants to write off the investment made in these gas based plants. In the opinion of the Committee, such an attitude of the lenders reflects that they just want to shrug off the responsibility of this crisis by referring the stressed plants to the NCLT.”
India’s total installed power capacity stood at 345 Gigawatt (GW) at the end of September 2018. Of this, 7.2 per cent or 25 GW comprised gas-based power plants. However, gas-based projects were responsible for only 3.8 per cent or 49.77 Billion Units of India’s total electricity generation in the last financial year 2017-2018. This was mainly because 14,305 MW of gas-based capacity is currently stranded due to non-availability of domestic gas and un-affordability of imported gas.
According to the report, investments ranging from Rs 4-5 crore per MW have been made into these stranded gas-based projects, out of which around 70 – 80 per cent of the capital cost has been financed by banks using public money.
Also, cost escalation ranging from 50-75 per cent of the original project cost has been experienced on account of delay primarily due to non-availability of gas.
“These plants are now unable to service their debt obligations to their lenders and are on the verge of becoming NPAs and need attention of Government of India for their revival. Failure to hand-hold these stranded gas based projects would see these plants going to NCLT. Even under Bankruptcy 10 Proceedings, these plants are unlikely to find buyers till the status of gas availability improves,” the report read.
Ministry of Power submitted that a capacity of 14,305 MW was classified as stranded under the scheme of Utilization of gas based power plants. The capacity of 14,305 MW includes commissioned as well as new gas based capacity which was ready for commissioning.
When asked if these gas-based power plants were set up without finalization of Fuel Supply Agreement, the Ministry in its reply stated: “Out of 14,305 MW, a capacity of 5,194 MW has been allotted domestic gas. Balance 9,111 MW has no allocation of domestic gas and are commissioned/being implemented without any Gas Supply Agreement.”
Asked about the reasons for continuing the construction of gas-based power plants to the tune of 3,000 MW despite very little hope of gas supply to them, the Ministry told the committee these power plants were planned with the expectation of considerable increase in the volume of domestic gas production, particularly from KG D6 field.
“However, the production of gas from this field reduced drastically to nil supply for power sector since March 2013. In view of shortage of gas, Ministry of Power had issued an advisory in March 2012 for the developers to not plan power projects based on domestic gas till 2015-16, as projections for 2014-15 and 2015-16 given by MoP&NG could not support any new capacity.”
On being asked about the causes for stress in gas-based power plants, the ministry said: “The shortage of domestic gas supply to the power plants. Further, the power plants are not able to generate power on imported RLNG at affordable rate to the DISCOMS, consequently the power is not scheduled.”
According to the submissions made by the Power Ministry, 31 gas-based power plants have been declared stranded, of which one belongs to the central government, six belong to the state-government and 24 gas-based power plants belong to the private sector.
According to the report, the normative gas requirement to operate the existing gas-based power plants of 23,813 Mw capacity at 85 per cent Plant Load Factor (PLF) is about 102 Million Standard Cubic Meter per Day (MMSCMD). However, the total domestic gas allocated to gas-based power projects is 87.05 MMSCMD and average gas supplied to these gas based power plants during the year 2017-18 was only 30.72 MMSCMD (including 7.92 MMSCMD of imported RLNG).
The gas grid connected capacity had received 21.16 MMSCMD gas during 2017-18 and achieved average PLF of around 20 per cent only and gas based capacity connected with isolated gas fields had received 9.55 MMSCMD gas and achieved a PLF of 51 per cent. Therefore, the average PLF of gas based generation capacity in the country during 2017-18 is about 22.86 per cent.
When asked if the government assured in the past that 143 MMSCMD gas would be made available and had this assurance triggered the setting up of power plants in the country, the Oil Ministry, quoting the minutes of the meeting held by an Empowered Group of Ministers, stated: “The present availability of indigenous gas is around 143 MMSCMD, which includes KG D6 production of around 60 MMSCMD. KG D6 is being produced in accordance with the scheduled earlier indicated by the Directorate General of Hydrocarbon and is being utilized by priority sectors in accordance with EGoM decisions.
On being asked about the reasons for non-fulfillment of the above mentioned assurance and commitment, the Ministry said, “One of the reason for non-fulfillment of the commitment was due to non-availability of gas in KG D6 fields as expected of 80 MMSCMD by the end of the year 2009.”
Assuring the Committee about the increase in domestic Gas production in the near future, the oil secretary said, “Pursuant to a series of steps taken by the Government, we are now reasonably confident that domestic production of gas would undergo a significant jump in the years to come. In 2019-20, our estimate is that it will go up to 45.50 billion cubic meters; in 2020-21, it will go up to 49.50 billion cubic meters; and in 2021-22, it will go up to 60.50 billion cubic meters.
The Committee in its observations hoped that this time the Ministry has made a realistic assessment unlike in the case of KG D6, which triggered the setting up of gas based power plants in the country. The panel recommend that the ministry should be cautious in making future projections with respect to the availability of domestic natural gas to avoid the implications caused by KG D6, as such situations reflect poorly on the credibility and reliability of the government’s projections and policies.
comments on this article
1.We can operate all gas based projects and put in more also.
What is required is to land natural gas imports as CNG at less than $5 per mmbtu. This is possible.
BPC, ONGC and OIL have a 30% interest in the Rovuma gas fields in Mozambique offshore which has trillions of CBM of gas. The lead partner Anadarko cannot successfully set up the onshore LNG train for which these Indian companies have to put in another $ 20 billion. The political conditions and the terrorism would not let the project materialise even for another 20 years. To set up offshore LNG train is too expensive.
The solution for the Indian companies and for us in India and the Indian power plants is to import some of the Indian share of the gas as CNG from Mozambique offshore to Indian Offshore to link the shore grid. At a nominal gas transfer cost of $1 per mmbtu and an ocean freight of $ 3 per mmbtu for sea transportation of the gas as CNG , the landed cost will be less than $ 5 per mmbtu. The technology for sea transportation of natural gas as CNG is available duly approved by American Bureau of Shipping , DNV and others.this can be done in two years. India can get 50 mmcbmd of gas at that price in a five year time frame in Indian bottoms too.
2.This is a very sad state. All matters pertaining to power is interlinked with Central and State Governments. There should be a council on the lines of GST council with technical experts for taking proper decisions. If it is left like this the situation will go bad to worse.
Bilal Abdi | ETEnergyWorld