In what may bring huge relief to the 66,000 mw domestic coal-based generation capacity awarded through the tariff bidding route, the government plans to initiate policy changes to allow developers of these projects to recover additional fuel costs to meet the shortfall in domestic coal supplies through imports. While the projects of Jindal Power, Adani Power and Essar Power would benefit if the proposal is implemented, utilities of beneficiary states would end up paying an additional R0.30-0.35 per unit of power bought by them. Several of these projects are facing the risk of default on power purchase agreements due to reduction of coal supply from Coal India, or delays in production from captive blocks.
These projects had signed power purchase agreements with state electricity boards on the basis of 100% coal supply from CIL or captive mines allocated to them for running power projects at 85% of the plant load factor. While CIL has said that it is not in a position to deliver the committed coal quantity and will provide only 80% of the coal contracted earlier, some captive mines also have failed to take off on time because of environment approvals and now rely on the state-owned producer for coal supply.
?The MoC ( ministry of coal) has to soon come out with a coal pricing/supply policy for the power sector for 60-67 giga watt capacity, which will enable the power ministry to examine its implications on tariff and consider an enabling framework to make imported coal cost a pass-through in competitive bid projects,? said a senior government official.
The move is in line with the decision taken by the Cabinet Committee on Economic Affairs (CCEA) in a recent meeting. The proposal has been mooted given the difficulty of implementing a comprehensive coal price pooling mechanism for all power plants. This exercise would insulate power generators from any penal action by states for not generating the required quantity of power under the terms of the PPA.
The PPAs signed for these plants allow generators to recover any additional fuel costs arising from a change in the domestic law. Sources said that to enable the power ministry to introduce the required regulatory changes, the coal ministry may soon come out with a new coal distribution policy, reflecting changes in CIL?s coal supply obligations under the new fuel supply agreements (FSAs) signed by it with power companies. Under the new regime, CIL is obligated to meet only 80% of the coal requirements of power plants, a provision which is out of sync with the existing coal distribution policy that stipulates the state-owned producer to meet 100% normative coal requirement at 85% PLF.
The proposal has found favour with the CCEA because its impact would be limited to only these projects, unlike in case of comprehensive price pooling mechanism that has wider tariff implications for public sector power plants. States have opposed this kind of price pooling. Besides, the Planning Commission and the finance ministry have also expressed reservations over the proposal.