In the wake of the controversy surrounding the award of telecom spectrum, the Government might be forced to adopt an auctioning model for handing out coal blocks and linkages, instead of the discretionary, point-based screening system followed currently.
Private power developers, including Tata Power, Reliance Power, Essar, Jindal Power, GMR, GVK, Adani and Lanco, have jointly stepped up the pressure on the Government to shift to an auction process to award new coal blocks and linkages in order to ensure a “level playing field” among all participants. These players, under the aegis of an industry body called Association of Power Producers, estimate that the 50-plus coal blocks holding resources of around 15 billion tonnes that are in line to be given out to prospective project developers, can fetch up to Rs 30,000 crore in terms of direct revenues for the Government from the bidding process. Another Rs 1,50,000 crore is pegged as estimated receipts under royalty, tax and cess payments if a bidding process were to be adopted.
According to Government officials involved in the exercise, while the transition to an auction model was under consideration, the spectrum controversy could accelerate the shift to a market-based mechanism for award of future coal resources.
The demand by private project developers on the need to shift to the auctioning route comes in the wake of a significant spurt in the share of private players in overall project commissioning this plan period. Likening coal to telecom spectrum and other scarce resources, the APP, which represents an upcoming generation project portfolio of around 1,20,000 MW, has proposed a segmented (sector specific auctions for the power and cement sectors) auction process for better price discovery.
Current System
The system of allocating a coal linkage free of cost had originally evolved for public sector projects for supplying power to distribution utilities on regulated tariff. Later on, the system was extended to private developers selected on the basis of lowest quoted tariff in competitive bidding such as the Sasan Ultra Mega Power Project, wherein the cheap availability of fuel resources is reflected in the electricity tariff.
In case of a merchant power plant selling electricity in the short term market, the additional profit due to cheaper coal would naturally accrue to the project developer and the consumer may not be benefited. However, under the Ministry of Power guidelines for allocation of coal blocks/linkages, it is also desirable to develop untied generating capacities to cater to the need of short- term electricity market. The coal linkage policy issued in October 2009 accords first priority to power projects of PSUs and projects to be bid out by states on tariff based competitive bidding (under Case II format, where land and fuel linkages are identified beforehand for each project) and second priority to private sector projects. A large number of private sector projects have already been allocated coal under the current policy regime.