Say it is not in alignment with larger commodity pricing policy

Private power producers have opposed the cost-plus pricing of coal and fear that the proposed Coal Regulatory Authority Bill would encourage such a regime.

Ashok Khurana, Director-General, Association of Power Producers (APP), has written to Finance Minister P. Chidambaran that cost-plus pricing was not in alignment with India’s larger policy on energy commodity pricing.

The letter comes ahead of a meeting of the Group of Ministers, headed by Chidambaram, to be held on December 18, to deliberate on the draft for an independent regulatory authority for the sector.

According to the APP, cost-plus pricing was redundant where coal blocks were allocated through the auction process. In such a situation, the bidding company could make any bid as it would be assured of the price that covered all expenses in addition to a reasonable return.

“In our view, the preferred model for coal pricing is market pricing on an arm’s length basis (as in oil and gas production sharing contracts). This policy can also be directly applied for surplus coal from captive mines, which can be either sold to Coal India or to consumers who are looking for more supplies,” Khurana said in his letter to Chidambaram.

The APP claims that more than 44,000 MW of capacity may be stranded soon because of coal scarcity.

The lobby body also felt that the draft Bill for a regulatory authority did not encourage any forward-looking measures in the coal market, such as coal exchanges and spot markets. It did not even speak of encouraging coal exploration and production.

(This article was published on December 18, 2012)
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