he power ministry feels that power producers should be able to buy coal from open markets at competitive prices and power purchase agreements (PPAs) should not be a precondition for getting access to coal, said the sources.
The Union power ministry wants the coal ministry to ramp up commercial mining. According to official sources, power minister RK Singh has written to his coal counterpart Pralhad Joshi emphasising the need to create open coal market which, in turn, will facilitate an open power market. The power ministry feels that power producers should be able to buy coal from open markets at competitive prices and power purchase agreements (PPAs) should not be a precondition for getting access to coal, said the sources.
As FE reported last month, a high-level Niti Aayog committee had also suggested the coal ministry to conduct auctions only for commercial mining and put an end to captive coal block allocation. Experts have attributed sub-optimal use of captive coal mines to lower requirement at power plants to which they are tied up to, and have argued that such dynamics limit competition and reduce efficiency.
Singh, on various occasions, has stressed the need to shift from the PPA mechanism to open power market which will lead to competition and lower power prices. “Electricity forms a crucial input for every type of industrial activity and low cost power is very important for the industry to flourish,” the minister had said recently in a meeting with industry representatives.
Commissioned power projects which have PPAs but no commensurate fuel arrangements, are eligible to apply for special e-auctions of coal, where, electricity generators allege, CIL unilaterally increases the floor prices (reserve price) at which the auctions begin, leading to higher electricity prices. More than 27 MT of coal was offered to the power sector through this route in FY19 when the highest bidding power plants had to pay 72% more than the ‘notified price’ of coal.
To attract private players, the Cabinet in February 2018 had approved the auction methodology for commercial mining. Even after that, several auctions had to be cancelled as they could not even elicit three bidders to participate. In February 2019, the Cabinet allowed private companies to sell up to 25% of production from captive coal mines in the open market. Earlier this month, the coal ministry started the auction process of 27 coal mines and allotment of 15 coal mines to government companies.