Coal crisis: Private gencos ask govt for penalty mechanism for short supply of fuel

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October 25, 2021 4:15 AM

Currently, IPPs have to make full payments for coal in advance, while there is no penalty for coal companies, including Coal India (CIL) and the railways, if the desired quantity and quality of coal does not reach private generators on time.

Improved coal supplies in the recent days, complemented with lower power demand with decreasing temperatures, have helped in avoiding a serious electricity supply shortage situation.Improved coal supplies in the recent days, complemented with lower power demand with decreasing temperatures, have helped in avoiding a serious electricity supply shortage situation.

Independent power producers (IPPs) have asked the government to put in place “an equitable penalty mechanism” for all stakeholders — namely power plants, coal companies and the railways — to ensure that the risks of coal supply are balanced evenly between all parties. Currently, IPPs have to make full payments for coal in advance, while there is no penalty for coal companies, including Coal India (CIL) and the railways, if the desired quantity and quality of coal does not reach private generators on time.

Gencos owned by the central and state governments, however, are not required to make the payments to coal suppliers in advance. In the run up to the current coal crisis, many states were receiving lower coal supply because of their outstanding dues to CIL. The government recently said that Maharashtra, Rajasthan, Tamil Nadu, Uttar Pradesh and Madhya Pradesh have legacy issues of heavy dues to coal companies.

Sources said that a delegation of the Association of Power Producers (APP) recently met Union power minister RK Singh, where the industry members requested the minister to introduce a ‘tripartite fuel supply agreement’ to be signed between generators, coal companies and the railways. “This would ensure clear demarcation of responsibilities for coal supply to private power plants, and ensure balanced distribution of risks,” a senior APP official told FE. Singh is said to have asked APP to send in a memorandum so that the Union power ministry can write to the states and other stakeholders regarding the issue.

Improved coal supplies in the recent days, complemented with lower power demand with decreasing temperatures, have helped in avoiding a serious electricity supply shortage situation. Analysts, however, feel that higher-than-average power demand and over-dependence on coal-based power plants will make it difficult for electricity generating stations to maintain comfortable levels of fuel inventory in the near future. Temperatures begin to soar in the March-May period, “therefore, a build-up in coal inventories before end-February is crucial”, analysts at Crisil Research recently said.

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