No merchant sales, captive coal firms must ink long-term PPAs

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SummaryAbout a year after the Comptroller and Auditor General (CAG) slammed the government’s policy of allocating captive coal blocks on a nomination basis to private firms in end-user sectors like power, the coal ministry has now barred companies from selling cheaper captive coal-generated electricity in the merchant market at arbitrary prices and mandated these companies enter into long-term power purchase agreements (PPAs) with distribution companies ( Discoms).

of their scheduled commissioning.

The change in the guidelines was proposed by the power ministry in September 2012 just after a CAG report castigated the government for allowing private companies to reap windfall gains of R1.86 lakh crore by allocating coal blocks to them without auction between 2006 and 2009.

But since there was no clarity about legal tenability of the proposed amendment, the move was put on hold. Instead the matter was referred to the law ministry for opinion.

“Without securing lease from state governments, coal mining cannot be started,” said Dilip Kumar Jena, a mining consultant with PWC.

Most of the IPPs, which have been allocated captive coal blocks are yet to be become operational. Jindal Power’s 1,000-MW Tamnar is the only operational power plant.

It has been selling its entire power in the merchant market despite using captive coal . Former power secretary RV Shahi welcomed the coal ministry’s move, saying: “ It was never the idea of the merchant policy that entire power be sold in the open market.”

He added that at least 85% electricity should be supplied under long-term PPA from merchant plants, though balance can be sold in the free market.

Anticipating change in the captive coal block allocation policy, Jindal Power recently signed a 15-year long-PPA with Tamil Nadu for 400 MW supply from the Tamnar plant. Other coal block allocatees are also expected to follow suit.

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