Govt issues compensation methodology for using imported coal for blending

Our Bureau | | Updated on: May 27, 2022

| Photo Credit: SAM PANTHAKY

To support domestic coal-based generation companies that import costlier coal

The Power Ministry, on Friday, said it has issued a methodology for calculating the compensation due to Gencos that use imported coal for blending with domestic coal and is applicable for FY23.

The mechanism was issued in consultation with the Central Electricity Authority (CEA) after the domestic coal based power plants raised concerns over the pass-through of the increased cost in tariff if imported coal is used, and requested a methodology to determine the impact on tariff for mandatory blending of imported coal.

Power Ministry has issued directions under Section 11 of the Electricity Act today in the light of sharp increase in electricity demand and power shortage in some areas, it said in a statement.

Despite efforts to increase the supply of domestic coal, there is still a gap between the requirement l and supply, because of which coal stocks at the generating stations are depleting at a worrisome rate, it added.


The Ministry said the methodology shall be used by Gencos supplying power under Section 63 of the Electricity Act 2003, and State governments and Discoms to calculate compensation due to blending with imported coal.

The mechanism for billing and payment for these plants will be according to the PPA. However, to enable Gencos importing coal with adequate cash flow, the provisional billing shall be done by them on weekly basis, it added.

“Payment of at least 15 per cent of the provisional bill shall be made by the procurers within a week from the date of receipt of the bill. This provisional billing and payment shall be subject to reconciliation during final billing and payment on a monthly basis as per the power purchase agreement,” said the Ministry.

In case of default of payment of 15 per cent of the weekly provisional bill, the generating company shall be free to sell 15 per cent power in the power exchange. The generating companies shall ensure blending with imported coal and maintain coal stock as per extant norms and the directions issued by the MoP from time to time, it added.

Coal imports still subdued

In April, due to the rise in demand and inadequate supply of domestic coal, States and Gencos have been directed to import at least 10 per cent of their requirement of coal for blending.

The States were advised to give timely clearance to independent power producers (IPPs), wherever required, in the PPA for blending of imported coal. The procurement must be done in a transparent manner to obtain competitive rates.

However, it has been observed that import has not been at the required level. Some Gencos are not willing to import coal for blending due to lack of clarity on compensation on account of blending with imported coal. In May, the States and the State Electricity Regulatory Commission (SERCs) were requested to ensure that all generating stations under them take immediate action for importing coal for blending, the Power Ministry explained.

Taking note that blending of imported coal to the extent of 10 per cent is not happening as stipulated, and that the reserve stocks of coal are continuing to dip, the Ministry issued directions to all Gencos on May 18.

It directed Gencos that if orders for import for blending are not placed by May 31 and if imported coal for blending purpose does not start arriving at the power plants by June 15, the defaulter Gencos will have to import coal for blending purpose to the extent of 15 per cent (in order to meet shortfall of imported coal for blending purpose in Quarter1 -April-June 2022) in the remaining period up to October 31.

Published on May 27, 2022
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