Power cos may’ve to give priority to captive coal

The government may make it mandatory for power producing companies like Tata Power, Adani, JSW Energy and Reliance Power to use coal from their domestic captive blocks on a priority basis for their projects that hinge on imported coal, which is costlier. This means that they can divest coal from captive mines to their own other upcoming projects only after meeting the requirement of plants that use imported coal.
The move aims at arresting rising dependence on coal imports by independent power producers (IPPs) that puts a significant upward pressure on the cost of power generation, which in turn will have strong bearing on tariffs for the end users.

The issue has also become important in wake of several imported coal based power projects, including Tata Power’s Mundra ultra mega popwer project and Reliance Power’s Krishnapatnam UMPP, indicating that their tariff bid projects would become unviable if a spurt in price of imported coal (due to changes in export policy in countries such as Indonesia) is not allowed as pass through in tariff.

While these projects have sought a revision of their power purchase agreements (PPA) with beneficiary state utilities, the Centre’s proposal aims to reduce the impact of high price of imported coal on electricity tariff for consumers.

The proposal, which is in initial stages of conception, has been mooted during a high level meeting of committee of secretaries headed by PMO principal secretary Pulok Chatterjee. The committee has been asked by the Prime Minister to remove bottlenecks for the sector in a time bound manner.

As per the proposal, all companies that are setting up tariff based bid project based on imported coal and also have captive coal mines for some of their other projects, would be asked to divert any surplus coal (if available) for meeting a portion of the the requirement of their imported fuel based project. This, the government believes, would help these projects

to prevent cost from shooting beyond a level and also

help beneficiary states and their distribution utilities, who agree for a revision

in PPA, to prevent consumenrs from paying higher tariff due to global volatility in coal prices.

Sources said that the proposal, once approved, would also be used as a one-time mechanism to address sudden change in global fuel market due to changes in policies there. It would also not convert the status of imported fuel based project to one based on domestic coal but local fuel could be limited to say about 30% of the total need of project so that impact of tariff from pure imported coal operation could be reduced. The 30% blending is also considered for other imported fuel as a policy by the government.

While the government including the PMO is committed to reduce import dependence and ease domestic coal shortage, the move to tweak policy on imported coal may hamper plans of IPPs, which have plans to use surplus coal for domestic power -based projects instead of imported ones, thus taking the advantage of opportunity costs.

Many companies like Reliance Power have earmarked surplus coal from single mine for more than one project. In fact, the 4,000 MW Sasan UMPP of Reliance Power , has got permission from government to divert surplus coal from its captive blocks to another 4000 MW Chitrangi projevct being set up by the company in Madhya Pradesh. The government decision here has been questioned by the CAG and government is likely to take a fresh look oover the issue during a meeting of group of ministers.

Most of the IPPs including ultra mega power project developers like Tata Power and R Power have acquired coal mines in Indonesia , Australia for supplky of coal to their power plants. On account of change in regulation or taxation policies in such countries, they will gain substantially as owners of these mines but they will lose as consumer of these coal in their respective power plants. Increasingly, IPPs have opted for acquisition of overseas mining assets,

however, they remain exposed to volatility in coal prices as well as political and regulatory risks.
Source: FE

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