Putting captive coal to work

Jul 24 2013, 11:33 IST
Comments 0
SummaryRegardless of the mode, pricing will decide the success of a captive coal usage policy

The government has set up a committee to frame a detailed policy on surplus coal usage from captive blocks. The panel’s policy suggestions will have a bearing on private sector companies like Reliance Power, Jindal Steel and Power, Tata Group and Electrosteel Castings.

As many as 195 captive blocks with geological reserves of 44 billion tonnes were allocated in the last 20 years to public and private companies for captive use in their projects in sectors like power, steel and cement. Of these, only 30 block are under production now.

The need for a policy on surplus coal usage was felt after a controversy erupted over a ministerial panel’s decision in 2008 to allow diversion of surplus coal from Reliance Power’s Sasan ultra mega power project (UMPP) in Madhya Pradesh. Tata Power, which had pulled out of the project’s bidding, cried foul and challenged the move in court. Later, the comptroller and auditor general (CAG) too raised objections to the panel’s decision.

Another reason for the matter assuming urgency is the rupee’s depreciation in recent weeks. Rising coal imports have widened the country’s current account deficit and aided the rupee’s fall.

The huge demand-supply gap in domestic coal has become a national concern, and experts have been pointing to the need to tap surplus coal from captive blocks.

Coal production becomes surplus at a captive mine in case of any mismatch in the operation schedule of the mine or the end-user project. For example, a captive owner could face an excess coal situation if the mine starts production while the end-user project has not yet begun operations. It takes a couple of years for a mine to reach peak production, while generation can be ramped up at power plants in a matter of hours.

Coal banking and direct sale to Coal India Ltd (CIL) are major two options being talked about. Under the coal banking arrangement, a captive block can supply excess coal to the nearest mine of a CIL subsidiary and get the same quantity back when it needs the coal later. The alternative option envisages direct sale of excess coal by the captive block owner to CIL or its subsidiary at a mutually agreed price. Both the arrangements should help CIL in meeting its coal supply commitments to user industries.

But the success of the second option will hinge on pricing. Unless attractive incentives are offered to captive block owners, they may not be persuaded

Single Page Format
Ads by Google

More from FE Special

Reader´s Comments
| Post a Comment
Please Wait while comments are loading...