Govt invokes Electricity Act to cap fuel charges

Industry calculations reveal for every six million tonnes of coal production, the payout by companies allotted coal blocks for power generation will be Rs 1,500 crore each year

Clearing confusion over the final tariff of power produced from the auctioned coal blocks won by power producers, the ministry of power has empowered Central Electricity Regulatory Commission (CERC) to ensure that their tariff does not exceed what has already been concluded under the Power Purchase Agreement (PPA).

“The revision of tariff undertaken by CERC shall not lead to higher energy (fuel) charges and total tariff throughout the tenure of power purchase agreements (PPAs),” said the directive of ministry of power to CERC.

The directive restricts higher energy charge by coal block winners and allows only ‘downward revision’ of tariff by the commission. This is likely to hit the power companies who could have recovered the coal cost by showing higher cost in other components of energy charges. Industry calculation reveal that for every 6 million tonne of coal production annually, the pay-out by companies which have been allotted coal for power generation would be Rs 1,500 crore every year though they cannot charge higher for coal.

The ministry of power has asked CERC to review the energy components of tariff which include price of coal as per auction amount, transportation cost, washery and crushing charges, royalty/duties and levies.

For coal transportation, the rates should not exceed the benchmark rates of Coal India Limited. The other factors of the tariff would need to abide by the ‘Standard Bidding Document’ for coal auction which disallows any pass through on the final tariff. It also necessitates the mine winner to submit its fixed cost details and final tariff on basis of bid quoted.

As per rough calculation of ministry of coal, for every negative bid of Rs 100 per tonne, there would be 6 paisa reduction in power rate.

For the capacity addition already contracted under a power purchase agreement (PPA), the allocation of coal block to a certain power plant would be treated as ‘change of law’. “This would enable for revision in tariff downwards in accordance with provisions of power purchase agreement,” said the directive.

The ministry of coal in its first ever e auction of producing 40 coal mines has allotted 11 mines were for end use power generation. All the bidders for these blocks had bid negative with the final bid price going below Rs zero. This has to be discounted in the final power tariff wherein the cost of fuel is taken as zero.

The ministry of power has decided to review the existing PPAs of the coal block winners to ensure that the benefit is passed on the consumer of power sold from the plants attached to the mines.

Under the power conferred under the section 107 of the Electricity Act has issued directive to review and determine energy charges for “supply of electricity by a generating company where coal is sourced from coal mines auctioned under the Coal Mines (Special Provisions) second ordinance, 2014.”

This, the directive said is to ensure that the benefits of the coal block auction and allocation are passed on to the consumers.

THE CHARGE CAP

·        Energy charges include - price of coal, transportation cost, washery and crushing charges, royalty/duties and levies

·        Coal price was bid negative by power companies

·        Other components cannot be changed to recover low bid

·        Profits of power companies to take hit as cost recovery restricted

·        Low power tariff benefit to the consumers ends