Private power companies winning projects through tariff-based bidding may be exempted from buying captive coal blocks under the auction route as the government plans to avoid two-stage bidding for them. The aim is to keep electricity tariffs at affordable levels.
Power producers currently participate in tariff-based bidding on the assurance of coal linkage or a captive coal block. However, under the competitive bidding process for coal set to start from January next year, power projects, like other users, are slated to lose this cushion and bid for coal blocks even if power tariff is decided through competitive bidding. The current thinking in the government is to continue to accord power companies the benefit of assured coal linkage.
?This (power companies having to source coal under auction) is a concern that has been raised by the power sector. The power ministry has been asked to give its input on the matter so that necessary changes could be made in the guidelines for the competitive biding process in the larger interests of electricity consumers,? coal minister Sriprakash Jaiswal told FE.
An official said the power ministry has already conveyed its views to the coal ministry, which would work out necessary changes in the rules and regulations being framed for auctioning coal blocks. He added that the dispensation could be subject to availability of coal.
The proposal, once adopted, will be music to the ears of private sector power producers such as Jindal Power, Reliance Power, Essar Power, JSW Energy, Tata Power and Adani who fear that competitive bidding process will raise the cost of fuel and make the tariff-based bidding process difficult. It will also put private projects at a disadvantage against state and central sector projects that would continue to be allocated coal blocks.
Moreover, under bidding, domestic coal will not be guaranteed to projects and some will have to buy expensive foreign coal for their projects. Imported coal costs almost thrice as the domestic market price.
?Yes; it is a good and a viable approach. However, it should be done prospectively and not retrospectively for a level playing-field,? Tata Power said in response to an FE query.
?The bidding process for captive coal blocks increases power tariff. We believe that the criteria should not be upfront payment for coal mines; other factors like credibility of the developer and the stage of development of the power project should also be considered,? the company said.
Under auction rules being finalised by the coal ministry, all future coal blocks will be allocated to power, cement and steel sector users on the basis of competitive bidding. The coal block to be auctioned will be earmarked sectorally and the process will be done for the power sector in consultation with the power ministry. The net worth of the bidder will be an eligibility criterion with the successful bidder getting time to pay the bid amount in five installments.
Coal is in short supply in the country with expected imports of about 142 million tonnes in 2011-12. Assurance on domestic coal will be a big incentive for power projects and help the government achieve the targeted 100,000 MW additional capacity generation by the end of 12th Five Year Plan (2012-17).