Power reforms on PM’s menu today
November 28th, 2011

Prime Minister Manmohan Singh will conduct a meeting on 29-11-2011 with top officials of key ministries on the developing crisis in the power sector, differences between the Planning Commission and the coal ministry threaten to stall progress. The meeting, meant to take stock of the progress in ultra-mega power projects and the financial crisis in several electricity distribution companies across states, is likely to focus more on these differences instead.

The Planning Commission has proposed changing rules to assure more coal supply for power-generating companies from domestic or imported sources, which the coal ministry fears will adversely impact Coal India (CIL) and give an unfair advantage to those with captive coal blocks.

At stake are those like Tata Power’s and Adani’s projects (both at Mundra) and Reliance Power’s Krishnapatnam project. These have a combined capacity of 15,000 MW and have been hit hard by soaring global coal prices.

The meeting comes at a time when combined losses of distribution companies have crossed R1.5 lakh crore. The meeting at Singh’s residence will be attended by officials from ministries of power, coal, environment and forests and railways.

BK Chaturvedi, member (energy) in the Commission has argued that Coal India’s fuel supply agreements with power companies are not bankable as they guarantee only 50% supply. The agreements he has suggested, should provide for at least 80%. If domestic coal is not enough to meet commitments, CIL should import the rest.

In addition, domestic coal prices should be pooled and set 10% higher and this amount should be shared with power plants having coal linkage from CIL in pro rata manner of total imports and on kilo calories basis of imported coal. The existing 5% duty on coal imports should also be withdrawn, Chaturvedi has said in his report on the sector. He has also proposed setting up an expert committee to suggest policy changes to provide relief to the mega projects.

But the coal ministry has rejected the suggestion that allottees be allowed to sell surplus coal to other user industries. It is in favour of handing over the surplus to CIL, which can then sell it to utilities through e- auctions.

The ministry also rejected Planning Commission’s idea of pool pricing of coal, saying it would not be practical as there is no single destination or same variety for imported coal.

To reduce the drag on discoms, the Chaturvedi report has suggested that states be asked to ensure their discoms stick to financial discipline. However, this should be done in a phased manner so states are not forced to make sharp tariff hikes. After a recent directive from the Reserve Bank, banks have stopped short-term loans to discoms, following which seven states including Uttar Pradesh, Tamil Nadu and Rajasthan have sought central bailouts.

There are other important suggestions like asking the Centre to act as the broker between power-buying states and producers to discuss tariff revision in supply contracts. For smaller state-level projects, he has recommended, tariff revision is better left to power-buying states as power purchase agreements provide for changes in any provisions of the contract by mutual agreement by the two sides with the regulator’s approval.

Towards implementing open access, Chaturvedi has suggested that at least a quarter of the 15% power available to the Centre from central utilities like NTPC and NHPC for discretionary allocation be earmarked for supply to open access customers. Discoms are required to comply with open access which facilitates power supply to customers with demand above 1 MW at negotiated prices.

One Response to Power reforms on PM’s menu today

  1. raj says:

    with the present set up no futher reforms is possible , from the earlier reforms , oi feel it was deforms . What ever the Act 2003 was supposed to reform has been set to naught by framing bye laws and regulation which are harsher on consumers and given free run to utilities and neutralise the beneficial provisions of the Act

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