Power firms can now pass on cost of imported coal to consumers

Get set to pay more for power. Electricity is likely to cost 10-25 paise per unit more following the Cabinet Committee of Economic Affairs’ decision to allow producers to pass on the cost of expensive imported coal to consumers.

Power is purchased by distribution utilities that, in turn, sell it to residential and industrial consumers. The exact increase in tariff will differ based on the quantity of imported coal a plant uses. Besides, distribution utilities will have to seek permission from the respective electricity regulators to raise rates.

The CCEA decision will help power plants commissioned between April 1, 2009 and March 31, 2015, with capacities totalling 78,000 MW. Of these, projects of nearly 60,000 MW have been in the queue to sign fuel supply agreements with Coal India since 2009 (See Table).

New plants, which will add 4,660 MW by March 2015, are also waiting for coal linkages.

Private power producers have been pushing for this decision. Projects totalling another 18,000 MW have been seeking a tapering linkage. That is, the projects have been allocated captive coal mines, but are not operating them. However, the CCEA decision is likely to be opposed by a few States as the average cost of power purchase will increase.

Defending the expected rise in electricity tariff, Finance Minister P. Chidambaram said the choice is to pay a little more or have no electricity at all. “Very large capacities are stranded because of no coal or gas. It serves no purpose.”

According to the Government, this is an interim arrangement to make up for the coal scarcity in the 12th Plan period. The ultimate goal is to increase domestic production of coal as a new plan to open more mines will be rolled out next month, the Finance Minister added. “Therefore, it has been decided that for any of these power projects, if they are commissioned by March 31, 2015, subject to availability of coal, a mechanism will be worked out to supply coal to them.”

A report by Macquarie Equities Research said, “Projects of GMR, JSPL, CESC and Adani will benefit significantly.”

Ashok Khurana, Director-General, Association of Power Producers, said, “The decision breaks the fuel impasse, which was threatening the viability of the generation segment and creating systemic risk for the banking sector. This will also help reducethe power shortages all over the country.”


(This article was published on June 21, 2013)
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