Coal linkage policy has government depts, power sector tied in knots

Grant of coal linkages through auction is learnt to have put the power sector, as well as the coal and power ministries, at odds. While the coal ministry wants to auction the linkages for close to 30,000 megawatt (Mw) of power, the power ministry wants to choose from ones which have firm power sale agreements. Of the planned 108,000-Mw generation capacity added after 2009, coal demand for 78,000-Mw projects is likely to come up by the end of the 12th Plan. Coal India is meeting 67 per cent the demand of these plants, which will increase to 90 per cent in the next financial year, leading to a demand of 433 million tonnes (mt). Besides, there are prior commitments of 300 mt for 65,000-Mw projects commissioned before 2009, making the total coal demand 733 mt.
 

The current annual production of Coal India is 480 mt and it is aiming to touch 550 mt. According to senior ministry officials, no future commitment would be made till they meet the prior ones. A senior official said Coal India would be able to meet 75 per cent of the latter. Besides, 30,000 Mw projects are still awaiting any sort of allocation. Of this, around 12,000 Mw plants do not have any power purchase agreements (PPAs). Adding the demand from the unregulated sector, the coal demand would be 919 mt.

"The various FSAs (fuel supply agreements) signed during the last government's tenure did not envisage coal production and also whether these projects had any PPA or not. We wish to put an end to such arbitrary allocation of coal linkages. On the lines of coal block auctions, we are planning that linkage should also be a transparent procedure," said a ministry official.

Under the draft policy, coal linkages would be awarded to designated state-owned power distribution companies. These discoms will, in turn, assign these linkages to state/central generation companies. The catch, however, is that in order to pass benefits to the consumer, the discoms would revise the rate downwards and generation companies will not be allowed to incur high energy charges after allocation in their existing PPAs.

Power plants without any PPAs would also be allowed to participate in auction of linkages but would have to surrender any existing sourcing arrangement with Coal India, said a power ministry official. According to power sector executives, any blanket policy of allocating linkage through auction would lead to arbitration. "There is a strong likelihood that projects without any firm PPA would grab linkage. Also, the government's draft policy restricts any revision in tariff after the allocation of linkage. For plants awaiting fuel for years, not factoring in the delay in its final cost is not possible," said a power sector executive.

"Power generators have communicated their concern to us," said a ministry official, adding, "We will try and balance out the situation." The tariffs are based on the earlier allocated blocks that had a different cost structure, said an expert, adding, "Placing restrictions on upward increase in tariff of the earlier signed PPAs would create uncertainty for the sector." According to him, plants with linkage would lose out on their existing arrangement. Besides, any likelihood of these firming up any PPA also gets diminished if they don't get any coal under the new linkage auction.

RAKE OVER THE COALS

• Of the planned 108,000-Mw power generation capacity added after 2009, coal demand for 78,000-Mw projects is likely to come up by the end of the 12th Plan
  

 

Coal India is meeting 67 per cent the demand of these plants, which will increase to 90 per cent in the next financial year, leading to a coal demand of 433 mt
 

Besides, there are prior commitments of 300 mt for 65,000-Mw power projects commissioned before 2009, making the total demand 733 mt