1. Here’s how coal auction policy has put 13-gw power capacity in jeopardy

Here’s how coal auction policy has put 13-gw power capacity in jeopardy

In all, 13,000 mw of PPA-equipped power capacity is struggling for want of fuel as their short-term fuel supply contracts with Coal India have expired. Besides, another set of units with aggregate capacity of 22,000-MW have yet to turn the letters of awards (LoAs) from CIL into long-term Fuel Supply Agreements (FSAs).

By: | New Delhi | Updated: August 1, 2016 8:09 AM
Experts said it was possible some of the firms in the sample had been compelled to either refinance their long-term loans or borrow more at higher rates of interest. (PTI) Experts said it was possible some of the firms in the sample had been compelled to either refinance their long-term loans or borrow more at higher rates of interest. (PTI)

We have got our customers by winning bids and it would be unfair if we have to go through the auction route again for fuel, a clutch of private power developers told the government, forcing the Cabinet to defer decision recently on a proposal to extend the new auction policy for coal linkages to power firms with long-term power purchase agreements (PPAs).

In all, 13,000 mw of PPA-equipped power capacity is struggling for want of fuel as their short-term fuel supply contracts with Coal India have expired. Besides, another set of units with aggregate capacity of 22,000-MW have yet to turn the letters of awards (LoAs) from CIL into long-term Fuel Supply Agreements (FSAs).

Power plants with PPAs, analysts said, might find it difficult to run their businesses if they have to participate in auction to re-establish coal supplies. Since these units are not allowed to revise tariffs under existing PPAs, they may have to suffer under-recoveries if the fuel linkages are to be firmed up via the auction route. “The auction for linkages would mean that power producers who manage to win the bids would end up paying a premium on the linkages as opposed to the notified (low) prices for such linkages available to some players. While this premium will have to be absorbed by the developers, there is also no clarity whether the associated royalty and other duties would be levied on the final linkage price or the notified price,” a developer told FE, on condition of anonymity.
The new policy of auctioning coal linkages would impact several thermal power units that have PPAs but have no linkages, including Adani Power’s stations in Tiroda and Kawai, Bajaj Energy’s Lalitpur plant and KSK’s unit in Chhattisgarh.

These units were being provided coal under a special dispensation called ‘Memorandum of Understanding (MoU)’ with Coal India on what is called best-effort basis. However, the coal ministry decided to discontinue supply under this route in June. As reported by FE earlier, the coal ministry had argued that since substantial quantity of coal was available under e-auction and forward e-auction, the special dispensation, which was brought about during scarcity of coal in 2012, was now redundant.

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“The proposal of asking PPA holders without coal arrangement to buy coal through auction has inherent flaws. This would create uncertainty about the quantum of coal and price of coal coupled with the need for retro-calibration of power tariffs under PPAs fixed earlier for 25 years. This would add to the stress faced by the developers,” Ashok Khurana, director general of association of power producers told FE.
Sources told FE that the power ministry was not in complete agreement with coal ministry–which has prepared the cabinet note—on these issues. (Incidentally,  both the ministries are now headed by Piyush Goyal).

However, the note was still taken before the cabinet. The cabinet then decided to consitute a group of minister (GoM) to review the matter. The sources also said that the GoM would be looking into the specifics of the provision before a note in this regard is sent to the Cabinet again.

Power firms are facing the problem of coal supplies despite Coal India’s production peaking in FY16 at 535 million tonne and stocks having piled up at pitheads. The current scenario is in contrast to the one in 2013 when CIL was finding it difficult to sign FSAs, despite constant prodding by the government. It had struggled to accept the FSA obligations even in case of power plants with long-term PPA and slated to be commissioned before March, 2015.

The government at that time identified two groups of plants with an aggregate capacity of 14,600 MW and asked CIL to supply fuel to them on a short-term MoU basis as they lacked LoAs from the company. Of these units, majority are equipped with PPAs but their fuel supplies are uncertain as the short-term contracts ended on March 31.

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