Coal ministry asks states to make IPPs ink purchase pacts

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States where power producers do not sign up will stand to lose their coal blocks (AP) States where power producers do not sign up will stand to lose their coal blocks (AP)
SummaryStates where power producers do not sign up will stand to lose their coal blocks

With the CBI intensifying its probe into the alleged irregularities in allocation of coal blocks since 1993, the coal ministry has sent an urgent missive to eight states asking them to compel merchant power plants located in that state to sign power purchase agreements with power distribution companies, failing which, their coal blocks should be de-allocated.

The CBI is learnt to have widened its ongoing probe into the coal block allocations. Coal blocks to independent power producers (IPPs) have also come under the agency’s scanner.

Following a recent in-house due diligence, the coal ministry has found that of the 29 blocks allocated to IPPs so far, may of the firms have not signed the PPAs with the discoms through tariff-based competitive bidding despite the ministry’s directive to this effect in June last year.

If a PPA is not signed then there is no way for the government to know whether the benefits of low cost coal from the captive blocks is translating into lower electricity tariff for the consumers.

After extensive consultations, the law ministry has also vetted the coal ministry’s proposal to ask the eight states to mandate the IPPs within their territorial domain to compulsorily ink PPAs with their discoms.

“These allottees, whose blocks are already commissioned or likely to be commissioned need to enter into PPAs with distribution companies or state-run utilities within 18 months from the date of issue of this directive failing which permission to mine the block may be withdrawn or suspecnded,” the coal ministry said in its letter on August 26.

The letter was addressed to the chief secretaries of Chhattisgarh, Orissa, West Bengal, Jharkhand, Madhya Pradesh, Maharashtra, Rajasthan and Gujarat.

Similarly, captive block holders whose mines are yet to come into production, should sign PPAs with discoms at least six months prior to the commissioning of their notified end use plants failing which, the approval granted to mine their blocks would also be withdrawn, the letter said.

Since it is the state government that finally grants a mining lease, the ministry has asked them to follow this directive before executing such a lease.

In case where a mining lease has already been executed, this should be imposed as an additional condition of the lease and incorporated in the agreement by way of an addendum, the ministry told the chief secretaries.

“In the larger public interest IPPs allocated blocks must

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