Coal or gas: Take your pick

The Economic Times, Mumbai


IT�S a toss-up between coal and gas. After years of being in an energy-deficit economy, large energy users like power companies now have a choice between coal and plentiful supplies of gas, which are projected to be available in two years. Comparison between the two fuels was highlighted by the extraordinarily low bids received for the coal-based ultra mega power projects, where producers have promised power at Rs 1.20 a unit. The petroleum ministry has set a benchmark price for domestic gas from the Krishna Godavari (KG) basin, with a floor price of $4.5 per million metric British thermal unit (mmbtu). Gas at this price would lead to more than doubling of the retail electricity tariff at Rs 5.10 per Kwh compared to the present average retail tariff of Rs 2.50 per Kwh, which may be unacceptable to retail consumers. This will also result in additional subsidy bills for the fertiliser industry, which is already highly subsidised. The power sector is by far the largest consumer of natural gas in the country, consuming 45% of the currently available production, followed by fertiliser industry, which consumes 39%. With a floor of $4.5, the landed cost is likely to be even higher once transportation tariffs and marketing margins are built in. ET spoke to a cross-section of gas users and producers to get a fix on the choices available. According to Tata Power executive director (finance) S Ramakrishnan, �gas should be priced appropriately based on the competing fuel. If price of gas goes up to $4.5 per mmbtu, the total expenditure for fuel may touch $5.5, including transportation cost, leading to a jump in the cost of electricity.� Coal is obviously the cheaper option of the two, but one limitation is availability and the other is pollution. The coal ministry has indicated the domestic availability of coal only at 478 metric tonnes (MT) against the projected requirement of 537 MT of coal, to achieve the targeted generation in the terminal year (2011-12) of the XIth Plan. Thus, additional coal will have to be imported. There is no shortage of naphtha and other liquid fuels for power generation, but their use is restricted because of the high cost. �$4.5/mmbtu is a hypothetical figure for the price of gas. The director general of hydrocarbons is setting the cost. Now, the power from coal is cheaper than gas, which was reflected in the bid for ultra mega power projects. The bidders quoted below Rs 2.30 per unit for the electricity from imported coal,� said power secretary R V Shahi. Major users like NTPC are keeping their options open. According to NTPC director (operations) Chandan Roy, �if cost of fuel touches $5.5 per mmbtu, the per unit cost may be over Rs 3. Then, Rs 2 will be the variable cost and Re 1 will be the fixed cost. This variable cost will change according to the efficiency of the project. Apart from these costs, taxes will also be added to the monthly bill.� The issue is even more complex for the fertiliser industry, which is not ready to bear the additional input cost. Urea manufacturers are subsidised by the government because they are not allowed to pass on the increased cost to the consumers and operate in free market due to its linkage with the agriculture. Rashtriya Chemicals & Fertilisers director (finance) M Sundararaman, �the fertiliser industry is facing huge shortage of gas, the lowcost raw material when compared to naphtha. RCF is getting gas at a price of $2.85 per mmbtu. If the gas price goes up, the government will have to give more subsidy to keep the fertiliser price under control.� According to the Planning Commission, after the recent finds by Reliance and GSPC (not factoring ONGC�s recent discovery), India�s total gas supply will outstrip demand of 219 mmscmd (million metric standard cubic metres per day) in 2010.