Coalgate firms get at least 18 months more of gains

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SummaryPower producers that have captive coal mines would be able to sell power in the open market and reap windfall gains for at least the next 18 months.

Power producers that have captive coal mines would be able to sell power in the open market and reap windfall gains for at least the next 18 months. This is because the law ministry has opined that producers need to be given an 18-month grace period to move to a new regime wherein such firms would be barred from selling power in the open market and instead would have to compulsorily sign long-term power purchase agreements (PPAs) with distribution companies based on competitive tariff bidding. The 18-month time period would kick in once the new norms are notified by the government, so in effect the companies would have greater time in hand. The Naveen Jindal-promoted Jindal Steel and Power (JSPL) would be the biggest beneficiary of this extension as currently it is the only firm to sell power in the open market from its 1,000 MW Tamnar project in Chhattisgarh.

The power ministry proposed new guidelines in September last year that barred power producers having captive coal mines from selling electricity in the open market and instead required them to sign long-term PPAs. This was because producers with captive blocks have access to cheaper coal compared with that sourced from overseas as well from

Coal India. Further, by selling power in the open market rather than through long-term PPAs, such firm bypass the need to participate in competitive bids and disclose their production cost.

The coal ministry did issue a directive asking power companies to desist from selling electricity generated from captive coal in the open market. But since the legal validity of the move was not clear to the ministry then, it put the directive on hold and referred it to the law ministry for advice. It is only now that the law ministry has accorded its assent to the directive. The coal ministry now needs to notify it and incorporate the same in the allotment letter of the firms that have so far been awarded captive coal blocks. Whenever notified, the norm would be applicable on a retrospective basis and include blocks allocated even prior to 2006.

While several power companies have captive coal blocks, Tamnar is the only plant in operation as of now.

The change in the guidelines was proposed by the power ministry in September 2012 after a Comptroller and Auditor General of India report castigated the government for allowing private companies to reap windfall gains of R1.86

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