Power gencos face penalty as coal demand hits a low

30 power plants with around 400-mt demand are sourcing coal below threshold limit

Stagnant power demand has pushed the sector to a new low. Around 30 power generating companies (gencos) with cumulative annual contracted quantity of coal (ACQ) of 400 million tonnes (mt) are sourcing the fuel below the lowest permissible threshold stipulated in their fuel supply agreements (FSAs) with Coal India.

Senior government officials said this would most likely lead gencos to pay a penalty for sourcing lower amount of coal than that stipulated in the FSAs.

According to data accessed by Business Standard, central (NTPC) units and state gencos are sourcing coal in the range of four per cent to 80 per cent of their respective ACQs. This is below the average “trigger level” of 85 per cent for the state and central gencos. The defaulters are Maharashtra, Madhya Pradesh, Andhra Pradesh, Rajasthan, Gujarat, Himachal Pradesh, Tamil Nadu and Telangana.

 

The trigger level is lowest permissible coal dispatch and demand. Any quantity below this level entails penalty for supplier if it defaults and for gencos if they fail to procure the stipulated amount. The penalty is levied at the end of the financial year. The data correspond to the April-September 2016 period.

This trend holds for privately owned independent power producers, who are sourcing in the range of 16-80 per cent - well below the average 84 per cent. Independent power producers (IPPs) such as CLP Power, J P group, Jindal Power, Rattan India, Reliance Power, Sterlite Energy, Torrent Power, MB Power have been sourcing coal below their trigger level.

"While this is a seasonal issue, this year the situation is grave because gencos are defaulting continuously. Not only are some far below their ACQs, but they have less time to compensate to avoid penalty at the end of the financial year," said a senior coal ministry official.

When gencos can't source coal during the lean period, they usually make up the gap by sourcing more when demand picks up in the peak period. This helps them maintain the threshold limit and avoid penalty. But this year, even in the peak summer months, the demand didn't increase much.

The current average plant load factor (PLF) or the capacity utilisation of a power unit is 58 per cent, compared to 64 per cent in September 2015. The peak power supply deficit has come down to two per cent from 3.5 per cent last year, mostly on account of demand not increasing as much as supply.

Gencos rue the fact that power demand is not picking up and as their plants are running at low capacity, they can't help but source less coal, said an executive requesting anonymity. "In the medium term, this is likely to continue, I fear," said the executive.

The penalty varies as the FSAs are exclusive of all the power units. "As of now, it would be difficult to compute. We would have a clearer picture at the end of the financial year. It is alarming though," said an official.

In June, around a dozen power plants across Uttar Pradesh, Maharashtra and West Bengal wrote to CIL and its subsidiaries to stop coal supply citing high stock at plant sites or backing down of power demand by host states as reasons. Sources said the list is increasing and very few have asked to resume normal supply.

The coal production target for CIL is 615 mt this year. During April-August 2016, coal production by CIL and its subsidiaries was 194 mt. Coal availability at power plants sites is at a record high of 20 days. CIL plans to achieve one billion tonne of coal production in five years.