Benefits must be passed on to consumers

Once bitten, twice shy. So, the Coal Ministry wants the Power Ministry to put in place a comprehensive ‘regulatory and monitoring mechanism’ to ensure that electricity from cheaper domestic coal is sold at regulated rates to State electricity distribution companies (discoms).

The Coal Ministry, which is preparing the grounds for auctioning coal mines, will add this clause in the allocation letters. As of now, the letter merely states that bidders should participate in the bids for sale of power to end-use customers, according to Power Ministry guidelines.

Strict monitoring

After discussions with the Law Ministry, the Coal Secretary, S.K. Srivastava, wrote a letter to his counterpart in Power Ministry, P. Uma Shankar, on September 4. According to the Coal Ministry, it needs to be clarified whether mere participation in the bidding process would ensure that the benefit of cheaper coal will be passed on to consumers, as observed by the Comptroller and Auditor-General of India in its audit report.

The CAG, in its report on allocation of coal blocks and augmenting production, highlighted that there was a ‘need for strict regulatory and monitoring mechanism to ensure that the benefit of cheap coal is passed on to the customer.’ The Government auditor said the New Coal Distribution Policy, 2007 (NCDP) envisaged effective coal distribution to small and medium consumers. However, no mechanism is in place to monitor or verify the end use of coal.

This would be a big dampener for companies such as Jindal Steel and Power Ltd (JSPL), which are selling electricity at market rates even after sourcing coal from captive mines. JSPL, promoted by Congress Member of Parliament, Naveen Jindal, operates a 1,000 MW coal-fired plant in Raigarh, Chhattisgarh on a ‘merchant basis.’

Currently, there are no correct estimates of the number of power plants that are linked to captive mines but selling the output as as merchant power. The Coal Minister, Sriprakash Jaiswal, has maintained that the Government allocated captive mines without auctioning to meet the rising demand for coal.

The Coal Ministry will add these clauses when it auctions 54 coal blocks with about 18.22 billion tonnes of reserves. Of this, 16 blocks (7.27 billion tonnes) will be for Government companies; 16 blocks (8.16 billion tonnes) for power sector companies selected through tariff-based bidding; and 22 blocks (2.79 billion tonnes) for companies to be selected through auction.


(This article was published on September 19, 2012)
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