In a move that will increase electricity tariffs by up
to 13 paise a unit, the cabinet committee on economic affairs (CCEA) on Tuesday
approved the pooling of imported and domestic coal prices.
The financial capability of power plants fueled by imported
coal has been affected due to fuel costs exceeded projections.
“It (coal pool pricing) was finalized. The decision in
principle has been taken,” Manish Tiwari, information and
broadcasting minister, told after the CCEA meeting. “The data has to be put on
to those principles. Ministry of power and ministry of coal have been tasked
with the responsibility of putting that data on to those principles.”
“The structure of the decision has been put in place and the
coal ministry and the power ministry will come back with the specifics. Hence, the basic principles and parameters have been identified and now just the
plotting of the real numbers have to be done and thus, I think in the next
couple of days it would be clinched,” Tiwari said, without elaborating on the
contours of the proposal.
According to the original proposal, meant to be a temporary
mechanism till domestic coal mining meets the country's demand, only those
power projects located near the coast will be eligible to benefit from the
proposed pooling of coal prices.
Such projects will have to feature on a list prepared by the
Central Electricity Authority (CEA), India's apex power sector planning body.
“There were three options that were put before the CCEA. The
pooling of coal prices will result in a tariff increase of not more than 13
paise per unit,” said a government official.
Price pooling could increase the cost of coal by Rs 90-100/MT.
The average price difference stands at around Rs.1,500 a ton, with
domestic coal being priced at Rs.4,500/MT. The estimate for the price rise
is based on the current price of coal and the estimated demand for imports by Coal India Ltd (CIL) of 20
million tons (mt) a year.
Private projects that will benefit from this scheme will be
those awarded via the so-called case 2 bidding route, wherein they were assured
domestic coal linkages.
The difference in prices will have to be borne by other
projects in the country. Bids for power procurement are sought in two ways. In
case 2 bidding, resources such as land fuel and water linkages are identified
and sometimes provided to the developer quoting the lowest tariff.
The government is in favour of this mechanism as it will
reduce around 50% of the cost of domestic coal transportation from the mines to
the coastal sites and from the coast to inland projects. CEA is of the view
that power plants equidistant from the coast and coal mines should be supplied
imported coal whereas CIL should supply coal for pithead-based power stations.
CIL supplies 347 million tons of coal to the power sector
and coal demand in India is expected to grow from 649 million ton per annum (mtpa) now to 730 mtpa in 2016-17. CIL has been mandated by the government to meet 80% of the downstream demand for coal. So far, the company has signed 54 of the 79
fuel supply agreements the government had asked it to get into.
“Power discoms (distribution companies) operate on a
cost-plus basis, so ideally, they should be able to pass on the cost to the
consumer. But that is a political decision,” said Arvind Mahajan, executive
director and energy and natural resources sector head, KPMG. “Private power
producers might start demanding that the additional hit be made 'pass-through' for them.”
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