New coal linkage policy will help hike efficiency
The government has done well to finally clear the coal-linkage policy which was an integral part of power minister Piyush Goyal’s UDAY scheme to help fix the ailing electricity sector in the country. Though a very big chunk of the R180,000 crore savings that Goyal projected were to come from state-owned banks taking a big haircut on their loans to state electricity boards—on an average interest rates have fallen by 3-4 percentage points—an equally significant R36,000 crore of savings were to come from higher efficiencies in the coal sector. This, in turn, was to come from three areas—hiking the production by Coal India so as to lower costly imports, getting higher efficiencies in the use of coal and by lower transportation costs that comprise around 40% of the cost of coal. While Coal India has already started to produce more, with the new linkage policy, big users of coal such as NTPC for instance will be free to decide where to source their coal from—till now, each plant has a mine allocated to it from where coal is to be delivered. Once this is done, power plants can get coal from the mine closest to them.
With the old linkage policy, since it was impossible to transfer the linkage to another power plant, firms tended to run even thermally inefficient plants—so we have a situation where inefficient plants and efficient ones are both running at 50-60% PLFs.Now, an NTPC or a Tata Power can, if they like, stop generating at the inefficient older plants, transfer all the coal to more efficient plants and thereby get large savings by operating them at higher PLFs. Estimates are, a saving of 30-35 paise per unit can be made by simply using this method. In the case of NTPC, a calculation made by the power ministry had shown a saving of over R8,500 crore—while R7,300 crore of this was to come from substituting Coal India’s coal for imported coal, the rationalisation of coal supplies was to bring in another R1,300 crore. While the amount of coal that Coal India can supply through e-auctions is to be remain unchanged, the rest of the supply will be given to state governments—the firm that gives the lowest bid for supplying electricity will then automatically be given a firm coal linkage from Coal India. While that brings in the much-needed transparency into the system of allocating Coal India coal, the government will need to find a way of ensuring that states don’t pass on all their coal linkages to their generating stations and leave a sufficiently large amount for private power generating companies.