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To tackle the increased power demand in summer, the Centre has intervened and directed Coal India to offer “out-of-turn” coal supplies to Central and State-owned power generating units.
This puts independent power producers (IPPs) in a fix as the Centre’s diktat does away with the system of auctioning of coal linkages, say industry observers.
Till now, the government used to auction coal supply linkages (assurances) through Coal India and its subsidiaries. But the decision to allocate coal is seen as a return of government controls over coal supplies. This is a blow IPPs’ aspirations of a ‘level playing field’.
In a May 24 letter to Coal India and its subsidiary Singareni Collieries Company, the Ministry of Coal said, “In order to avoid possible shortage of coal at thermal power plants, it has been decided that wherever it is operationally feasible based on various factors like coal stock availability, where suitable transport arrangements are in place, out of turn coal allotment may be made to State and Central PSU gencos to meet the coal requirement for power generation.”
Ashok Khurana, Director General at the Association of Power Producers (APP), said: “Discrimination based on ownership of assets puts into question the sanctity of commercial contracts signed by CIL. This would lead to more stress for bankers. This is against the Prime Minister’s stated policy of a level playing field and ease of doing business.”
Seeking a level playing field
Khurana said the APP has written to the Ministry of Power requesting that the same priority “should be extended to private sector plants. In fact prioritisation beyond contractual obligation should be on the basis of efficiency so that the same quantity of coal can produce more power.”
An affected power producer told BusinessLine , “The fate of coal allocation under the Shakti Programme and the e-auction is under threat as Coal India, which has been failing to meet its production targets, will have to supply to PSUs on a priority basis. The move will take a toll on already ailing IPPs.”
The Coal Ministry letter said power generation in April has been more than the ‘programmed generation’ and this may lead to a higher-than-anticipated increase in coal demand from the power sector.
A government official, however, said the diversion of supplies will not affect private power producers. “This supply will have no impact on other commitments with private producers. The fuel supply agreement is a commercial obligation with two parties. We have 46 million tonnes as on date at the pithead of Coal India, which is enough to meet the fuel supply of power plants.”
He added: “A minimum quantity of coal, called trigger quantity, has to be supplied. It is a commercial obligation that has to be supplied by a coal company. We have suggested that in case a State needs out-of-turn coal, it can take above the trigger level.”
The government’s earlier move to prioritise coal supplies to power plants with minimal coal stock has disrupted fuel supply to industries dependent on captive power generation.
The May 24 decision further goes against these power projects and puts government-run projects on a higher pedestal.
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