scorecardresearch

Coal linkage swap on cards; power companies to be major beneficiaries

The government is considering allowing power and steel companies to swap their coal linkages among group entities, subsidiaries and special purpose vehicles, in a bid to optimise fuel availability and cut down the restrictive transportation charges.

Move to optimise fuel availability and cut down restrictive transportation charges

The government is considering allowing power and steel companies to swap their coal linkages among group entities, subsidiaries and special purpose vehicles, in a bid to optimise fuel availability and cut down the restrictive transportation charges.

At present, coal linkages given to companies (mainly in power, steel and cement sectors) are exclusive to a particular project. These linkages are non-transferable even between group companies. ?We are examining a proposal on swap/transfer of allocated domestic coal linkages to reduce transportation cost and put domestic coal to best possible use,? said a coal ministry official.

no alt text set
no alt text set
no alt text set
no alt text set

Earlier, a suggestion in this regard came from the Central Electricity Authority, which has been endorsed by the power ministry. Once approved, the changes could be incorporated in fuel supply agreements being inked by Coal India.

As per the proposal under examination, companies having projects at multiple locations could be allowed the option to swap coal linkages. In the swap programme linkage for a particular project could be used to meet shortage of fuel for another project in case the location of the coal block is closer to second project. The second project could use coal either from nearest located source linked to the company or meet the shortfall from imports.

The proposed policy would only allow swap/transfer of linkage between projects owned by a company or parent – SPV/subsidiary project companies or subsidiaries with a common parent company. The same may be allowed when both the projects fulfill all criteria for supply of coal including achieving all milestones under letter of allocation and having executed power purchase agreement (PPA).

“The plan can only work efficiently when government adopts a price pooling policy for the coal sector where cost of coal for user industries is determined by taking into price in both domestic and international markers,” said Association of Power Producers director general Ashok Khurana.

The mechanism would mainly benefit companies such as Adani, Reliance Power, Tata Power who have projects (proposed and operational) both in country’s hinterland closer to coal mines as well as near the coast. The swap, in this case, could be between coal mines linked to coastal projects that may be closer to company’s hinterland project to meet for any coal shortfall there. The coastal project having capacity to use large portion of blended coal (imported as well as domestic) could meet shortage through imports.

“The proposed coal mix optimisation would help to reduce strain on the capacity of country’s transportation system,” said a CEA official. CEA has endorsed the new mechanism may be implemented on a case to case basis after taking into account the views of all stakeholders.

It is observed that existing coal linkage system practiced by CIL is often governed by demand-supply pressures rather than logistical analysis. This means that a project stationed in eastern part of the country may get coal linkage from Western Coalfields while Eastern Coalfields may be providing to south based projects. This creates unnecessary pressure on transportation network and increases cost for generating stations.

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.

First published on: 04-07-2012 at 00:17 IST