9/7/2014 Comments of Ministry of Power on

Comments of Ministry of Power on Domestic Gas Pricing and Power Sector Crisis (June 2014)

(1) Entire gas-based capacity in the country is nearly stranded.

(2) Projects are on the verge of turning into NPAs, exposing investing from banks.

Comments of MoP:

The present gas based power generation capacity in the country is 18964 MW (1584.5 MW projects commissioned without gas) and 7525 MW projects
without gas allocation are ready for commissioning. Thus total existing gas based generation capacity is 26,489 MW. Out of this 17 projects amounting to
2340 MW are off grid and working at average PLF of approximately 60%. Rest of the projects, which accounts for 24,149 MW, are gas grid connected and
nearly stranded as they are operating at sub-optimal PLF because of non-availability of gas. The average PLF of this capacity is below 20%. During the
month of May, 2014 the gas availability for the existing capacity was 26.43 MMSCMD including 1.1 MMSCMD RLNG, which is only sufficient to operate the
already commissioned grid connected plants (19624 MW) at an average PLF of 25%. If ready to be commissioned plants are added (total 24,149 MW) then
the average PLF which can be achieved with this amount of gas is 20%. If additional gas at reasonable price is not made available to the plants dependent
predominantly on KG D6 gas as well as new plants without gas allocation, there are high chances of them being declared NPAs by the lenders. This may
cause huge damage to the economy. For instance, RGPPL is already on the verge of becoming NPA.

(3) Changes in the domestic gas pricing would make power tariffs unviable with not many off takers and may further cripple financially
beleaguered Discoms:

Comments on MoP: The proposed increase of gas price will have an adverse impact on the already deteriorating financial health of the gas based capacity
as there are lesser chances of the power being scheduled from these plants. The approximate calculation of the impact of the gas price hike on the per unit
generation cost of the gas based plants at 50% PLF is enclosed at Annexure. With lower PLFs fixed cost become higher and cost of gas based generation
will increase.

(4) Mainstreaming LNG in power market by implementation of bulk imports of LNG and adopting Gas Price pooling and ensuring off take for
gas-based power generated using price-pooled gas.

Comments of MoP: There is no doubt that mainstreaming LNG in power market by implementation of bulk imports of LNG and adopting Gas Price Pooling
Mechanism (GPPM) and taking necessary action within the power sector is an option to make the gas based generation viable as it is a cleaner fuel.
However, the weighted price of the pooled gas will again render these plants unviable.

In fact, for improving the utilization of stranded gas based generation capacity, Ministry of Power circulated a CCEA Note in October-September, 2013. The
proposal was for pooling of domestic gas with RLNG and subsidizing the difference between cost of generation and proposed tariff figures of INR 5.5 per unit
for FY 2013-14 (three months), INR 7 per unit for FY 2014-15 and INR 7.5 per unit for 2015-16. Total financial implication of the proposed subsidy for 2013-
14, 2014-15 and 2015-16 was INR 28,216 Crore and the proposal was not supported by the Ministry of Finance. This proposal stands withdrawn.

In view of above, after another round of deliberations, a fresh CCEA note was circulated in February, 2014. This scheme has two components i.e., Subsidy
component and financial package. In this scheme, effort was made to lower the subsidy while offering relief for the stranded gas based plants through
financial package.

i. The Power Plants covered in the subsidy scheme are the Gas based generation dependent primarily on APM Gas with installed capacity of 10,382
MW. Government of India will allocate subsidy for reimbursements to State DISCOMs. Subsidy is worked out on the basis of the difference in actual
tariff and INR 5.0/unit for 2014-15 and INR 5.50 for 2015-16. The indicative Subsidy to be borne by Government would be about INR 3621 Crore in
2014-15 and INR 2056 Crore in 2015-16 to support APM Gas based plants. Total Subsidy for the year 2014-16 works out to INR 5,677 Crore.

ii. The power plants covered in the scheme for financial package are:

a. For above mentioned Gas based generation dependent primarily on APM Gas: 10,382 MW

b. For projects mainly dependent on KG D6 Gas: 6996.5 MW

c. For projects with no Gas allocation: 1797.5 MW

iii. For projects mainly dependent on KG D6 Gas, it is proposed to allocate all additional NELP gas that becomes available to the Power sector to these
plants only. For 2014-15 it is proposed to be allocated to RGPPL.

iv. For projects with no Gas allocation, till sufficient domestic gas is made available to these projects, it is proposed that these power producers may
procure RLNG and generate power for direct sale to customers. (Note: In cases, where the generator has entered into contracts for supply of RLNG
and PPAs with consumers, further loan facility would be available from PFC on its normal terms and conditions)

v. The financial restructuring package mainly consists of the relaxations in ECB/Trade Credit like extension in COD, additional 3 years moratorium and
waiver of interest (for low PLF projects), & capitalization of interest.

Annexure

Calculation of Impact of Gas Prices on Power sector

1 Btu 0.2522 Kcal

Considering 1$ INR 60

1$/MMBTU INR 60/MMBTU

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9/7/2014 Comments of Ministry of Power on
1$/MMBTU INR 60/MMBTU

1$/MMBTU (1*60/0.2522)/10^6 INR/Kcal

Therefore 1$/MMBTU 0.000238 INR/Kcal

Considered Station heat rate 2000 Kcal/Kwh

Variable cost of generation for 1$/MMBTU Gas Price = 2000 x 0.000238 = INR 0.48/kwh

= INR 50/kwh

Fixed Cost of Generation INR 1.00/kwh at 85% PLF

Fixed Cost of generation at 50% PLF will be INR 1.70/kwh

With gas price of 6 $/MMBTU, considering Taxes and Transportation costs at the farthest end to be US$ 2 /MMBTU delivered Gas price may be
around US$ 8/MMBTU

Variable cost or Fuel cost of generation (FCOG) INR 4.00/Unit.

Total Cost of generation INR 5.70/Unit at 50% PLF

With gas price of 7 $/MMBTU, considering Taxes and Transportation costs at the farthest end to be US$ 2 /MMBTU delivered Gas price may be
around US$ 9/MMBTU

Variable cost or Fuel cost of generation (FCOG) INR 4.50/Unit.

With gas price of 8 $/MMBTU, considering Taxes and Transportation costs at the farthest end to be US$ 2 /MMBTU delivered Gas price may be
around US$ 10/MMBTU

Variable cost or Fuel cost of generation (FCOG) INR 5.00/Unit.

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