The government said on Wednesday it will boost imports of liquefied natural gas (LNG) to improve electricity generation and revive plants worth billions of dollars to fuel economic expansion.
India's plan to import LNG will boost power supply by 79 billion units valued at about Rs 420 billion and could spur spot prices of the super cooled gas trading at about $7.60 per million British thermal units in Asia.
Nearly a quarter of a century after India embraced economic liberalisation, many businesses still rely on costly back-up generators for round-the-clock power and a third of its 1.2 billion people are still not connected to the grid.
Prime Minister Narendra Modi, elected in May, has made a commitment to bring order to the chaotic power sector and end the chronic blackouts that impede India's economic rise.
The government has charged GAIL (India) to import LNG for power plants outside Gujarat, where a local state company will import the fuel to revive power plants and improve generation, Power Minister Piyush Goyal said after a meeting of the union cabinet.
"During the rainy season lasting five months when power demand is less, India would daily import about 10 million cubic meters of gas and this would rise by 80 percent in the remaining seven months", Goyal said.
To make imported gas affordable to consumers, the union and state government will give tax concessions while the importers will charge less for regassification, transportation and marketing.
India has about 24,150 megawatt gas-grid linked generation capacity representing about Rs 1 trillion investment. Of this 60 per cent is at the threshold of becoming toxic asset while the rest is operating at below capacity due to falling local gas output.
"Revival of stranded gas based capacity would ameliorate stress on the banking sector. This will kick-start growth and have a multiplier effect on the economy," a government statement said. It would also restore investors' confidence in the power sector, it added.
Power companies had set up a large number of power plants, pipelines and other infrastructure anticipating supplies from Reliance Industries-operated east coast gas fields in D6 block, where output has fallen drastically.
Supply of gas to power plants from D6 block has been stopped since March 2013.