Coalgate firms get at least 18 months more of gains

Written by Noor Mohammad | Noor Mohammad | New Delhi | Updated: Jun 20 2013, 08:30am hrs
Power producers that have captive coal mines would be able to sell power in the open market and reap windfall gains for at least the next 18 months. This is because the law ministry has opined that producers need to be given an 18-month grace period to move to a new regime wherein such firms would be barred from selling power in the open market and instead would have to compulsorily sign long-term power purchase agreements (PPAs) with distribution companies based on competitive tariff bidding. The 18-month time period would kick in once the new norms are notified by the government, so in effect the companies would have greater time in hand. The Naveen Jindal-promoted Jindal Steel and Power (JSPL) would be the biggest beneficiary of this extension as currently it is the only firm to sell power in the open market from its 1,000 MW Tamnar project in Chhattisgarh.

The power ministry proposed new guidelines in September last year that barred power producers having captive coal mines from selling electricity in the open market and instead required them to sign long-term PPAs. This was because producers with captive blocks have access to cheaper coal compared with that sourced from overseas as well from

Coal India. Further, by selling power in the open market rather than through long-term PPAs, such firm bypass the need to participate in competitive bids and disclose their production cost.

The coal ministry did issue a directive asking power companies to desist from selling electricity generated from captive coal in the open market. But since the legal validity of the move was not clear to the ministry then, it put the directive on hold and referred it to the law ministry for advice. It is only now that the law ministry has accorded its assent to the directive. The coal ministry now needs to notify it and incorporate the same in the allotment letter of the firms that have so far been awarded captive coal blocks. Whenever notified, the norm would be applicable on a retrospective basis and include blocks allocated even prior to 2006.

While several power companies have captive coal blocks, Tamnar is the only plant in operation as of now.

The change in the guidelines was proposed by the power ministry in September 2012 after a Comptroller and Auditor General of India report castigated the government for allowing private companies to reap windfall gains of R1.86 lakh crore from allocation of coal blocks without auction between 2006 and 2009.

Subsequently, it came to light that JSPL, which bagged the captive mine in 1998, earned large sums of money by accessing cheap coal and selling power at higher tariffs in the open market.

On its part, JSPL has consistently denied such charges.

As per the changes that have now been approved by the law ministry, all operational plants would get 18 months' time to sign PPAs with discoms once the norm is notified. If they fail to comply with the new regulation within the stipulated time frame, their allocation could be cancelled. Power projects that have been allocated captive coal blocks but are yet to come up will be required to sign at least six months ahead of their scheduled commissioning or lose permission granted to them for mining coal from the captive block. The Tata Group, Essar, JSW Group and Abhijit Group are some of the other entities that have been given captive coal blocks but are yet to commission the associated power plants.

JSPL is yet to sign any long-term PPAs for power supply to discoms. However, it does participate in tariff bidding for electricity supply to discoms under short- and medium-term contracts. In an interview with FE in January, JSPL managing director Ravi Uppal had said, Currently we produce 2,500 MW of power which would go up to 5,000 MW by 2014. We have some short-term PPAs but so far we have not been able to sign any long-term PPA. We are participating in bids and recently did so in Uttar Pradesh but we did not emerge as the lowest bidder.