The government has issued guidelines to allow power producers to swap coal supply assurances in exchange for lowering of tariffs.

A Coal Ministry statement said, “The one-time process of calling for the requests of the Independent Power Producers for linkage rationalisation shall be undertaken jointly by Coal India, South Eastern Coalfields and the Central Electricity Authority in a transparent manner.”

Only independent power producers (IPPs) having coal linkages through the allotment route will be eligible to avail this facility. “The IPPs shall also be stating the Minimum Order Quantity for which the linkage rationalisation shall be requested and their preferred mode of transportation after the linkage rationalisation,” the statement added.

The power producers will have to pass through the savings achieved due to reduction in the landed price of coal to the Discom and consumers of power. The Fuel Supply Agreement (FSA) of the rationalised source from any coal company would be signed and implemented only after the appropriate Electricity Regulatory Commission approves the supplementary agreement.

The reduced landed price of coal shall lead to savings in cost of power generated and shall reduce transportation cost of coal, the statement added.

But, the policy alone may not be able to meet its intended goals of decongesting the coal transport network and lowering cost of supplies. Kameswara Rao, Leader - Energy, Utilities and Mining, PwC India, said, “The objectives of the policy are real and laudable, but the process is overly rigid, and so the benefits of the policy may not be fully realised.”

“As the entire gains are passed on to the procuring utility, only those IPPs whose lower logistics cost improves their position in the merit order are likely to consider this,” he added.