Govt may allow coal linkage swap

Written by Subhash Narayan | New Delhi | Updated: Jul 4 2014, 07:39am hrs
To optimise availability of coal and reduce its cost of transportation, the government is planning to allow consumers in the power, steel and cement sectors to swap fuel linkages between associated companies and special purpose vehicles.

At present, coal linkages (domestic or imported) given to companies (mainly in power, steel and cement sectors) under the terms of fuel supply agreement (FSA) are exclusive to a particular project. These linkages are non-transferable even within group companies.

Once implemented, the proposed move would benefit companies such as Adani, Reliance Power and Tata Power which have projects (proposed and operational) in the country's hinterland closer to coal mines as well as near the coast. The country's largest power producer NTPC may also benefit as it also imports coal for blending purposes while most of its projects are in the hinterland.

The swap cases could be between coal mines linked to coastal power projects that may be closer to the company's other projects in the hinterland. The idea is that coastal power projects can mostly use imported coal, while the plants close to the pithead can use domestic coal under the swap arrangement.

Sources said coal and power minister Piyush Goyal has asked officials in the ministry to work out a proposal for allowing swapping coal linkage along with a list of projects that could be involved in the process. The new arrangement would involve making changes in the FSA that Coal India signs with consumers.

We are examining a proposal on swap/transfer of allocated domestic coal linkages to reduce transportation cost and put domestic coal to the best possible use, said a coal ministry official. Earlier, a suggestion in this regard came from the Central Electricity Authority, which has been endorsed by the power ministry.

According to the proposal under examination, companies having projects at multiple locations could be allowed to swap coal linkages. In the programme, linkage for a particular project could be used to meet shortage of fuel for another project in case the location of the coal block is closer to the second project. The second project could use coal from the nearest located source linked to the company or meet the shortfall from imports.

The proposed policy would initially allow only swap/transfer of linkage between projects owned by a company or parent SPV/subsidiary project companies or subsidiaries with a common parent company having executed power purchase agreement (PPA). Later, such transfers could be allowed between unrelated companies as well if it makes economic sense. Such approval would be given on a case to case basis as differential pricing of imported and linked coal would have to be adjusted.

Such swapping (between unrelated companies) can only be possible if a price pooling mechanism is worked between imported and domestic coal, said a power industry expert asking not to be quoted as he is not authorised to speak to the media. The proposed coal mix optimisation would help reduce strain on the capacity of the country's transportation system, said a CEA official.