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A subgroup led by Chanda Kochhar, managing director and chief executive of ICICI Bank, has pitched for the expeditious implementation of the coal procurement and pricing mechanism (CPPM) for all operational power projects. The subgroup, appointed by an advisory group led by Power Minister Jyotiraditya Scindia, also recommended a gas procurement & pricing mechanism.
Ashok Khurana, director general of Association of Power Producers and a member of the advisory group, said, "The power minister informed the advisory group the power and coal ministries were able to resolve their differences on coal pooling and the issue would be taken up by Cabinet Committee on Economic Affairs at its meeting slated for April 23."
Kochhar submitted the subgroup's report at the third meeting of the advisory group last evening. The advisory group was set up to look into various issues faced by the power sector and suggest a slew of measures to resolve these.
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The subgroup emphasised the need to augment domestic coal production through speedy clearances, mining development operations, merchant miners and a policy on the sale of surplus coal from captive mines to reduce dependence on coal imports. It also suggested GAIL India be appointed the pool operator. A separate standard bidding document should be formulated for gas-based power procurement to address mismatches in the periods of gas supply agreements and long-term power purchase agreements, it said, adding a separate policy on peaking power procurement and tariff should also be formulated to procure peaking power from gas-based stations.
The subgroup suggested two options to include generation capacity in the CPPM pool - entire linkage-based capacity (98,000 Mw) operating as on date (a rise of 10-15 paise per unit in variable cost of generation) or existing linkage-based capacity commissioned after a cut-off date of March 31, 2009 (a rise of 50 paise per unit in the variable cost of generation). It recommended the capacity scheduled for commissioning till March 31, 2017 be included in the pool, as and when commissioned, at a 60-70-paise per unit rise in the variable cost of generation.
Projects expected to be commissioned in the 12th Plan but for which coal wasn't allocated yet should be included in CPPM pool after they were commissioned, based on a differential formula of pooled pricing, the subgroup said.
For new projects beyond the 12th Plan, the price of coal could be based on a differential formula such that the pricing for operational projects wasn't disturbed and this shouldn't be part of the CPPM arrangement. As an interim solution, each project company should have the option to directly import the required coal and have the increased variable cost as an automatic pass-through in tariffs (based on a reference price) till CPPM was implemented, it said.
It recommended single-window clearance for Coal India Limited (CIL) and captive coal blocks, fuel pass-through in all power purchase agreements till normative availability, pursuant to CIL being unable to meet its contractual commitments and the formation of an independent coal regulatory authority. Besides, it sought rationalisation of allocated coal linkages for transportation of coal, a comprehensive plan for improving coal handling and logistics facilities and a change in the coal sector - from a monopolistic structure to an open model.
On gas-based projects, the subgroup urged the government to accord priority to gas allocation to the power sector, diversion of gas from non-core (six million standard cubic metres per day, or mscmd) to the core sector and the augmentation in new allocation to core sectors (10 mscmd) from ONGC/Gujarat State Petroleum Corporation gas fields.
The group also suggested three options for the speedy implementation of GPPM. First, a common pool for core sectors on equal parity corresponding to 70 per cent plant load factor for the power sector and 70 per cent demand from the fertiliser sector (a blending ratio of domestic gas to re-gasified liquefied natural gas ratio of 67:33). Second, pooling of the power sector for gas-based capacity at 60 per cent plant load factor for the fertiliser sector at 40 mscmd could result in a blending ratio of 67:33. Third, the fertiliser sector retaining its existing allocation; the requirement of the power sector, at 50 per cent plant load factor, could result in a blending ratio of 67:33.
