With a glut in coal production coupled with slow offtake from the power generating companies, the government has asked power plants, that paid 40% premium for the fuel under a special dispenasation started in 2013, to switch to e-auction route where the prices are now cheaper.
The mechanism introduced in 2013 was in view of the crunch in coal supplies and now that enough quantities of the fuel are being produced (the government is even trying to explore the option of exporting coal), it has turned redundant, official sources said.
[related-post]
Nearly 8,000 MW of coal-based plants in the private sector with active power purchase agreements has been procuring fuel under the so-called memorandum of understanding (MoU) scheme since 2013.
Adani Power’s thermal stations in Tiroda and Kawai, Bajaj Energy’s Lalitpur plant and KSK’s unit in Chhattisgarh have procured coal under the MoU route.
The government now expects these plants to avail of coal via the e-auction or forward auction routes being conducted by the state-run Coal India (CIL). “We have been auctioning an average of 8 million tonne every month and even that has not been fully utilised.
Besides, the plants procuring coal under MoU are paying 40% premium on the fuel while the rates at e-auction has only been marginally above the nominated (subsidised) price,” coal secretary Anil Swarup said.
Swarup added the MoU scheme was a relic of the past, devised at a time when coal production lagged way behind thermal capacity installation rate. The scheme was initially slated to expire at the end of last fiscal. However, the coal ministry extended the tenure by three month to June 30.
Apart from procuring through e-auctions from CIL and its subsidiaries, such plants would soon have the option to participate in coal linkage auction. The cabinet is expected to clear the same this week. Under these auctions, state government will be allotted linkages from CIL, which will in-turn be auctioned to the plants quoting the lowest power tariff in a reverse auction.
Till now, these linkages were being allotted based on recommendations from a government committee, which vetted fuel supply application from the industry, much in the same way as coal blocks before auction mechanism was introduced in 2014.
The current scenario is in contrast to the one in 2013 when CIL was finding it difficult to sign FSAs, despite constant prodding by the government. It had struggled to accept the FSA obligations even in case of power plants with long-term PPA and slated to be commissioned before March, 2015.
The government at that time identified two groups of plants with an aggregate capacity of 14,600 MW and asked CIL to supply fuel to them on a short-term MoU basis as they lacked LoAs from the company.
At the same time, apart from identifying plants for short-term supply contracts, CIL was also issued a presidential directive to sign FSAs with certain power plants holding valid letter of assurances (LoAs).
For this purpose, a list of power plants totaling around 78,000 MW capacity was finalized by the Central Electricity Authority (CEA) and approved by cabinet committee on economic affairs (CCEA).
However, only about 58,000 MW of this capacity has been commissioned till date with around 54,000 MW having long-term PPAs and are therefore eligible to draw coal from CIL under FSAs.
Although slugging demand in coal-based industries including power generation has meant that the country has become sufficient in coal leading to drastic fall in imports but the government realises that a pick up in demand could easily reverse the situation.
This has prompted the government to get out of binding fuel supply agreements and evolve a market-based mechanism for coal supply.
For example, the estimated coal production in FY17 from CIL and its subsidiaries is pegged at 598 million tonne. However, a look at the requirement of power industry suggests that pre-2009 commissioned plants alone need 304 million tonnes if operating at 85% plant load factor.
Similarly, another 440 million tonnes would be required to satisfy the demand of post-2009 coal-based power plants with 107.5 GW capacity. “Coal India can not commit to supply to all power plants even at current level of coal production.
As the PLF is low, coal off-take is low, therefore the situation is easy as on today,” an industry source said on the condition of anonymity.
