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New Coal Pricing Formula To Trigger 25% Rise In Power Tariffs Of

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Kandula Subramaniam BSCAL
Last Updated : Feb 11 1998 | 12:00 AM IST

The power tariffs of private coal-based independent power producers are set to go up 20-25 per cent after the new cost-plus pricing formula introduced by Coal India Ltd comes into effect.

CIL has initiated the price hike at its subsidiaries located in Madhya Pradesh. The hike is likely to be extended to other parts of the country too. However, sources did not indicate when the other CIL subsidiaries would raise their prices.

The huge increases for projects located in Madhya Pradesh are over the tariffs that have already been negotiated by the IPPs in their power purchase agreements (PPAs) with the state electricity board. The increases are expected to come into effect before the projects go on stream.

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Power project developers will now calculate their power tariff on the basis of a cost plus approach, against the administered pricing mechanism (APM) which they had earlier used while formulating their PPAs.

Under the new formula, the price of coal will be calculated on the basis of the cost, plus an internal rate of return of 18 per cent, with the result that coal prices will be more than double the figure arrived at under the APM.

Coal companies have adopted the new price structure in order to maintain the viability of coal mines over the entire term of the coal supply agreement.

Some of the IPPs which will be affected by the move include the Daewoo-promoted 1,000 mw Korba project, the Birla-promoted 500 mw Bina power project and the Jindals 1,000 mw Raigarh power project.

All these promoters are at different stages of finalising their coal supply agreements with Coal India subsidiaries, and are expected to sign their agreements by April. Once the coal supply agreements have been firmed up, the IPPs could increase the power tariff every six months, as the coal companies would be reviewing their prices every six months.

Under the APM, the price of coal (grade F) is around Rs 350 a tonne, which would increase to up to Rs 900 a tonne under the new pricing structure. Soros-promoted Pench power project has already incorporated the new pricing structure into its power tariff and has worked out a variable cost of Rs 0.65 per kwh for sale of power to the Madhya Pradesh SEB.

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First Published: Feb 11 1998 | 12:00 AM IST

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