The coal ministry is likely to devise a separate coal block auctioning process for power projects awarded through tariff-based bidding. The move is in response to the concern of the power ministry that projects would become uneconomical if a developer had to go through two rounds of bidding — one for deciding the tariff for sale of electricity and the other for allocation of coal block.
The concern had recently led the power ministry to seek an exemption from coal block auctioning for projects awarded through bidding on tariff-based criteria. “This is a valid demand, but giving such an exemption may not be feasible. There will be a separate bidding mechanism worked out for tariff-based power projects in future,” a senior coal ministry official told Business Standard.
The final guidelines are yet to be formed, under the separate mechanism, mines will be shown to the power company upfront to enable the developer to quote a tariff for the supply of power accordingly, to save margin, the official said.
Under the current tariff-based bidding system for power projects, a developer bags a project by quoting the lowest tariff for electricity supply. Captive blocks are given to such companies to protect their margins. However, Under the competitive bidding regime, approved by Parliament earlier this year, a company that quotes the highest revenue share with the government for a coal block will be the winning bidder. The ministry of coal is currently working out the modalities for the bidding process and is yet to start the auctioning.
At present, India has a power generation capacity of 181,000 Mw. Power projects with a combined capacity exceeding 42,000 Mw have been awarded since the tariff-based system was introduced. The framework has aided in ramping up the much-needed private participation in power generation, apart from ensuring cost-effective power for consumers.
Competitive bidding is aimed at bringing in “transparency and objectivity” in the overall coal block allocation process. It will replace the current practice of allocating blocks on the basis of recommendations of an inter-ministerial committee. The domestic industry has already been opposing the move, arguing that it would increase the financial burden on companies and lead to market distortions.
The domestic industry has also been demanding changes in the tariff-based competitive bidding route for the award of power projects. It has been asking for provisions to insulate developers from price-related risks from recent regulatory changes in countries like Indonesia and Australia. The changes are set to make imported coal costly for companies setting up projects.
