Essar Powers demand of tapering linkage for Mahan plant rejected by coal min

Written by Subhash Narayan | New Delhi | Updated: Mar 5 2014, 10:34am hrs
In what may further delay Essar Powers plans to fully commission its 1,200 MW Mahan project, the coal ministry has turned down the companys demand of tapering linkage for the plant till its captive coal mine in Madhya Pradesh commences production.

The coal ministry, in a recent communication to the Prime Minister's Office (PMO), expressed its inability to ask Coal India to sign a letter of assurance (LoA) with Essar Power MP as the coal PSU and its subsidiaries were reporting negative coal balance.

Keeping in view the demand supply position of coal from CIL sources, there is no scope for issue of any fresh LoAs, the letter to PMO has stated. PMO had forwarded a proposal seeking linkage for the project. The power ministry had also sought the linkage, recommending the project for the 12th Plan.

Essar Power MP is setting up a 1,200 MW (Phase 1) power plant in Sidhi district of MP, with plans to use coal from the captive Mahan mines in the state. The first 600 MW unit of the project has already been commissioned in December 2012 while the second is close to commissioning (in the first half of 2014). The company has invested R7,000 crore in the project.

Though fuel for the power plant was proposed to be used from the captive mine, delays in getting environment and forest clearances for the mining project have prevented any work on the mine, thereby forcing the company to look at expensive e-auction coal to meet the requirements of the first 600 MW unit. The company had proposed tapering linkage from CIL till its mines get operational.

"Essar Power has made a detailed representation to the government, seeking tapering linkage for its 1,200 MW Mahan Power Plant, and is awaiting a positive response. We have not been communicated about

the outcome of our application from the government yet," said a company spokesperson.

Company sources said that the use of e-auction coal could put further strain on the company's balance sheet, already been hit with cost overruns due to delays in the mining approval.

Essar Power's Mahan coal nine, which was under the list of projects being considered for de-allocation by an inter-ministerial group (IMG) for delays in securing necessary clearances, has got a reprieve with the much-delayed State II forest clearance for the coal mine recently granted by the ministry of environment and forests (MoEF).

Industry sources said that even if Essar put the coal mine under fast-track implementation, it would take at least two to three years to operationalise it. This means, in the absence of tapering linkage, the project would need almost 4-5 million tonne of coal through e-auction or imports to run the 1200 MW plant.