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Ministry proposes Rs. 6,000-crore subsidy for gas-based power plants

NEW DELHI, February 11, 2014

The Power Ministry has moved a note before the Cabinet Committee on Economic Affairs (CCEA) with a proposal for a Rs. 6,000-crore subsidy for distribution companies and a financial restructuring package to improve the viability and utilisation of stranded gas-based power projects across the country.

The subsidy component would compensate the State discoms to act as a buffer to allow them to buy power at a higher rate and sell it at lower rates to consumers. According to the Cabinet note, the Centre would give subsidy to the electricity distribution companies for buying expensive power and selling it at a discount. This support would be for the administered pricing mechanism gas-based plants which would be hit by the increase in the price of gas from April 2014. The present gas-based power generation capacity in the country is around 18,964 MW, while another 8000 MW is waiting for gas allocation. Such a move would allow the discoms to sell power at Rs. 5 per unit by getting the government subsidy till 2015-16. Presently, certain State electricity regulatory Commissions (SERCs) such as Andhra Pradesh and Tamil Nadu have allowed discoms to procure gas-based power up Rs. 5 per unit. The subsidy to be borne by the governments would be about Rs. 3,621 crore in 2014-15 and Rs. 2,056 crore in 2015-16.

Financial restructuring

As for the financial restructuring package, the note proposes that in view of the financial stress being experienced by generating entities on account of lack of gas supply, the commercial operation date (COD) would be extended by one more year to allow companies restructuring of loan any time up to three years from COD, instead of two years, allowed at present. It also proposes a three-year moratorium (beyond the revised COD) on debt serving coupled with waiver of penal interest. Further, in case of stranded gas-based plants, it proposed to allow capitalisation of interest during the proposed three-year moratorium. Another proposal stated if that if the power projects were able to import natural gas and tie up consumers, then they would get an extra loan from the Power Finance Corporation as working capital as part of the financial relief. It also proposes full re-financing of rupee loan with external commercial borrowing (ECB) subject to an overall cap on borrowings and project companies hedging forex risk.


•  The subsidy would allow the discoms to sell power at Rs. 5 per unit by getting the government subsidy till 2015-16

•  Three-year moratorium proposed on debt serving coupled with waiver of penal interest

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