Power ministry moots fuel plan to keep lights on

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New Delhi | Updated: Nov 04, 2014 9:50 AM

Private-sector power plants with a combined capacity of over 1 lakh MW...

Private-sector power plants with a combined capacity of over 1 lakh MW, including plants of 36,500 MW that have been deprived of their captive coal blocks thanks to a recent Supreme Court verdict will get “firm coal linkage” if the Cabinet approves a plan put forth by the power ministry.
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Pooling of domestic (Coal India) and imported coal will be done to ensure these linkages; the mechanism will be available to all plants commissioned between 2009 and 2017 that have a fuel supply agreement (FSA) or a letter of agreement (LOA) with Coal India.
Besides, linkages helped by pooling will be assured to the all power plants that have now lost their captive coal blocks but are going on stream latest by March 2017, the end of current Five-year Plan, in case the firms concerned fail to regain the blocks in auction. The beneficiaries of the move include the Adani Group, Tata Group, KSK Energy, Reliance Power, CESC, DB Power and Monnet Ispat, apart from power projects of the Jindal, Essar, GMR and GVK groups (see table).
According to the power ministry’s proposal, in the case of power plants under the regulated (cost-plus) tariff mechanism — some 30% of the total capacity to benefit — Coal India will supply coal at prices that have factored in the pooling to meet 50% of the fuel needs of the plants to run them at a plant load factor of 85%.
As for the remaining projects that have either clinched power purchase agreements with buyers based on competitive bidding to determine tariffs or are slated to do so in future, CIL will fulfil the linkage obligation by stepping up the e-auction process for pooled coal. Of course, the cost of e-auction coal could be higher given the paucity of the fuel (currently, only 7% of Coal India’s output is sold through e-auction). Fuel linkage for plants that have lost captive coal blocks will be enough for 90% capacity utilisation.
The power ministry, sources said, tweaked an earlier proposal to give some kind of assured supply of coal for an additional 20,000 MW power capacity that have only signed MoUs with CIL and are without any FSA/LOA support.
Given the finance ministry’s objections to the proposal, FSA holders will continue to get priority in supply of coal over others who will now have to be content with a non-binding CIL initiative to supply coal to them on “best-effort basis”. Limiting the benefit of pooling to FSA holders and those plants that have lost their captive coal blocks could hit several power units including Bajaj Hindusthan’s 1,980 MW Lalitpur project, GMR Energy’s 1,370 MW Chhattisgarh project, Adani Power’s 1,320 MW Tiroda unit and Essar Power’s 1,200 MW Singrauli plant.
As coal pooling is proposed to be confined to post-2009 plants, in an an optimistic scenario, assuming enhanced local production of the fuel, the increase in cost of power generation for the units concerned would be an average of 74 paise per unit for 2014-15, 44 paise for 2015-16 and just 5 paise for 2016-17.
The plan to give coal linkage to units with 36,500 MW of capacity which have to part with their captive coal blocks mitigates the risks to the huge investments made in these plants. While they could lose out in the proposed auction process for reallocation of the cancelled blocks, at least they can get coal from Coal India under the pooling mechanism.
FE had reported earlier that while the new winners of the 74 blocks (including 42 producing ones and 32 about to start production) to be auctioned in the first phase will be allowed to swap the coal produced from these blocks among themselves to achieve operational efficiency. The swap facility, restricted to same end-use plants, will give relief to current holders of some of these blocks as it could somewhat offset the absence of right of first refusal for the blocks they had invested in.
The ordinance issued last week in this regard also states that companies with multiple end-use plants in the same category for instance, a company with two power plants in two different locations can divert coal to the plant not associated with the block.

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