Power producers with coal block quotas told to pass on cost benefits to consumers

S. Shanker
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Coal Ministry asks producers to take part in procurement bids

Independent power producers (IPP) with coal block allocations must participate in the bids for power procurement called for by discoms.

Discoms are distribution utilities that procure power and distribute it.

Failure to do so may lead to cancellation of coal block allocations.

The Coal Ministry, in a communication to such IPPs, said it had been noticed that many developers to whom coal blocks had been allocated were not participating in the bids or were quoting higher tariff almost similar to projects that had coal linkages.

Sources said such IPPs were also told that it could be made a condition in the allocation letter even for the already allocated coal blocks.

The communiqué to developers pointed out that a large number of coal blocks had been allocated to the private sector for both IPPs and captive power producers. The Government’s expectation, while allocating the blocks, was that the benefits of the low cost of coal from the blocks would be passed on to consumers in the form of lower electricity tariff.

The Chief Financial Officer of a leading power producer, who has operative coal blocks, confirmed receipt of the directive.

Almost all power producers have long-term power purchase agreements with utilities, but not necessarily for the entire quantum of their generation.

CAG estimate

The Coal Ministry directive comes at a time when the CAG is expected to come out with its final report.

The CAG has criticised the allocation of coal blocks and is in the process of finalising the ‘undue benefits’ bestowed on those who had got the allotments.

Industry experts anticipate that the Government auditor’s estimates of the loss to the exchequer on account of the allocations to be about Rs 2 lakh crore.

Experts also pointed out CAG observations were not off the mark as the recent submissions made to bids called for by Andhra Pradesh indicate. While quotes, in general, averaged close to Rs 5 a unit, one developer with coal blocks quoted Rs 5.27 a unit. There were quite a few bids from Rs 4.29 to Rs 5.78 a unit from producers with coal linkages.

Some imported coal-based projects and gas-based developers bid over Rs 6 a unit. The requirement was for a medium term of three years.

(This article was published in the Business Line print edition dated July 30, 2012)
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