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CCEA relief for imported coal power projects

July 2, 2013

Imported Coal__CCEA_Coal PowerProjectsMonitorThe Cabinet Committee on Economic Affairs has allowed power project developers to pass on the cost of imported coal to customers. This move would benefit power producers that have set up plants running on imported coal.

Over the recent past, prices of coal from countries like Indonesia and Australia have increased substantially resulting in idling of power generation capacity. CCEA’s decision will, however, mean higher tariffs for the consumer. On average, tariffs are likely to increase in the region of Rs.0.20 to Rs.0.40 per kwh.

This “pass-through” was accepted as an alternative of the coal price-pooling plan mooted earlier, which was rejected by some states. The proposal, which would benefit newer projects cumulatively amounting to an installed capacity of 78,000 MW slated to run partially or fully using imported coal as feedstock, is being seen as more acceptable to stakeholders. This is because fuel pass-through will be on a case-by-case basis as against the broad-based increases in fuel cost under coal price pooling.

While the details of the mechanism are still being worked out, the exercise would involve project developers having to renegotiate the power purchase agreements with distribution utilities contracted to buy electricity from them, most of which are owned by states. The power ministry has said that it would be issuing an appropriate advisory to both the central power regulator and regulators in the states to enable the commissions “to decide the pass through of higher cost of imported coal on case-to-case basis.”

Reacting to the CCEA’s decision, says Anil Sardana, Chairman, CII National Committee on Power, and Managing Director, Tata Power, said: “The decision taken by the Cabinet Committee on Economic Affairs to allow power companies to pass on the cost of imported coal to electricity consumers is, indeed, a welcome development and will benefit the 78,000-MW of capacity that is envisaged in the current plan period. While this may lead to a very marginal increase (15-17 paise) in the per unit cost of power, this move will ensure availability of power and will also prevent the creation of stranded capacity which currently are estimated at about 20,000 MW. This move is clearly a step in the right direction and reiterates the government’s commitment to address the issues impacting the power sector. It is also hoped that the processes to get this aspect approved from SERC will be simple and transparent.”

In an independent development,the government will soon issue an executive order to soon set up a coal regulator. It may be recalled that in May, the group of ministers headed by Union finance minister P. Chidambaram had cleared the Coal Regulatory Bill that could lead to the formation of an independent authority to look into issues relating to quality, supply and prices of coal.

It is important to note that the proposed regulator will not have the power to set or control prices; the coal producer will decide on prices. The regulator will however have the powers to adjudicate on disputes relating to price, quality and supplies of coal. The new bill also calls for the formation of an appellate authority.
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