Lack of assured coal linkages may drive 18 firms to open market

As many as 18 upcoming power projects with an aggregate capacity of over 25,000 MW might be forced to violate their tariff commitments and seek a much higher price from consumers. This is because the coal ministry has rejected a request from the developers of these projects for assured coal linkages and they might have no other option but to resort to the open market for fuel.

The projects to be affected include Essar Power?s Mahan, Adani?s Tiroda and GMR Energy?s Kamalanga stations. With no ?tapering coal linkage? in sight, the developers of these projects won?t have the option of getting coal at (lower) notified prices from Coal India (CIL) until production commences at their captive mines.

These projects are expected to be commissioned at various points of time during the 12th Plan period (2012-17).

Union power secretary P Uma Shankar confirmed the development but said there was no cause for panic. ?These projects (which have been denied tapering coal linkages) are fairly spaced out and can meet their fuel requirements through e-auction/imports on a temporary basis,? he told FE.

CIL?s e-auction price is nearly double the notified price charged by it for the supply of coal under fuel supply agreements (FSAs) while the price of imported coal is more than three times the notified price.

However, projects like Mahan, which are being developed through tariff bidding route, might not get to revise tariffs to accommodate an increase in fuel costs and may feel an impact on their bottom lines, according to analysts.

These projects had sought tapering fuel linkage, citing their difficulty to meet their projects’ fuel requirements from allocated blocks due to delay in mining work.

Sources said the coal ministry has rejected these developers? requests, saying that CIL has already issued letters of assurance for projects worth 80,000 MW where it is obligated to sign FSAs with developers for assured supply of coal during the 12th Plan. The ministry has said that the list has been finalised and it would not be possible for it to accommodate any variation at this stage without jeopardizing the process of signing of FSAs.

?If the development of captive mines is delayed due to genuine reasons, then power developers should strategise to secure coal from other sources including imports, e-auction and memorandum of understanding with state mineral development corporations,? said Dilip Kumar Jena, senior consultant and knowledge manager, mining, PWC.

Essar was banking on a tapering coal linkage to meet the fuel requirement of the 1,200-MW Mahan project in Madhya Pradesh. The company had told its investors in February that it had applied for fuel allocation for the Mahan project under CIL?s tapering linkage system. Hindalco, which is setting up a 750-MW captive power plant based on coal supply from the Mahan mine where it is a joint developer, will also have also to arrange coal supply on its own to fire the project.

Central and state projects are also among those denied tapering coal linkage by the coal ministry.

Rude shock

* Around 18 upcoming power projects with over 25,000 MW capacity might be forced to violate tariff commitments

* Projects that won?t benefit include Essar Power?s Mahan, Adani?s Tiroda & GMR Energy?s Kamalanga station

* CIL?s e-auction price is nearly double the notified price charged by it for supply of coal under supply agreements