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BW Businessworld

A Power(ful) Decision

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begun commercial production from KG-D6

At a time when there is a freeze on policy decisions on account of elections, the Empowered Group of Ministers (EGoM) has decided to give the power sector priority over LPG production in the allocation of gas from Reliance’s Krishna-Godavari (KG-D6) fields in Andhra Pradesh.

This decision, taken at the EGoM meeting on 9 April, would be a shot-in-the-arm for all gas-based stations that have been forced to operate at far below 50 per cent capacity (or half their plant load factor) for more than 3-4 years because of fuel shortages. But more importantly, this allocation would help reduce power shortages in states during the summer months. An assurance from the petroleum ministry that such a move would not adversely impact the availability of LPG has also paved the way for a shift in allocation.

Another factor that helped was the Election commission’s nod. Prior to the EGoM meeting chaired by External Affairs Minister Pranab Mukherjee, the Commission had indicated that it had no objection to the proposal as long as no publicity is given to the decisions taken — details of which have not been made public yet.

The timing of this decision on gas allocations becomes crucial as KG-D6 has begun commercial production from this month. Starting from 10 million standard cubic metres per day (mscmd), this would increase to 40 mscmd by July 2009.

While there are about 40 gas-based plants (both in the state and private sector) that face gas/fuel shortages in the country, the EGoM’s decision is expected to provide immediate relief to the Ratnagiri power project (earlier called Dabhol project) in Maharashtra as well as a clutch of seven gas-based power plants in Andhra Pradesh that are either starved for gas or have been forced to delay commercial operations due to fuel shortages.

While there are other plants in the list that would get gas, the total capacity of the Andhra Pradesh plants adds up to over 1,000 MW.

In fact, prior to the EGoM meet, Andhra Pradesh Chief Minister Rajasekhara Reddy had already told the Centre that keeping in mind the acute shortage of power during the summer months, existing gas-based power plants in the state should be given priority over fertiliser plants during the initial ramp up period of the KG-D6 fields.

While the priority accorded to the fertiliser sector over power has not been withdrawn, the EGoM reportedly was influenced by the fact that during the period from April to July consumption of power shoots up. In addition, it was highlighted that there is substantial power requirement during the kharif season.

Of the 18 mscmd gas earmarked for power sector, 2.7 mscmd would go to the Ratnagiri plant, 15.3 mscmd for distribution among other power plants. This arrangement would be in place till September.

The allocation was based on the principle that all existing gas-based stations in Andhra Pradesh, including those still to be commissioned, should be given enough gas to run at 70 per cent plant load factor (PLF). The EGoM, however, decided that allocation would be on a uniform 60.5 per cent PLF.

In other states, too, allocations to other stations should be on pro-rata basis to enable them to run at 60.5 per cent PLF.

(Businessworld Issue Dated 21-27 April 2009)