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The Government proposes to modify the Coal Distribution Policy that would enable power producers to pass through higher fuel costs to consumers. It will also amend competitive bidding guidelines under the Electricity Act.
The Cabinet Committee on Economic Affairs is expected to approve the fuel pass through mechanism shortly. Dependence on expensive imported fuels is forcing power producers to hike the price of electricity.
However, since the power purchase agreements do not allow the producers to pass through the high fuel costs, running plants on expensive imported fuels is becoming financial unviable. This also results in plants running on lower generation capacity.
The new mechanism would be implemented for all power plants commissioned after 2009. On May 29, Minister of State for Power (Independent Charge) Jyotiraditya Scindia; Coal Minister Sriprakash Jaiswal; and Finance Minister P. Chidambaram; decided to approach the Cabinet panel to implement this mechanism.
“Coal India would supply to the power plants according to the Fuel Supply Agreement (FSA). If there are any shortfalls, it would be met by imports. The higher cost of fuel would be pass through,” Power Secretary P Uma Shankar told Business Line .
However, this doesn’t mean that tariff will always rise, the Secretary explained. There would be mechanism where the fuel scenario and cost would be monitored, may be on a quarterly basis. Based on this the power producer would approach the regulator for change in tariff. It may move both ways, he explained.
In October 19, 2007, the Government announced the Coal Distribution Policy that said power and fertiliser sectors will operate in a price regulatory regime. So coal for 100 per cent of units’ requirement will be supplied by the coal companies under Fuel Supply Agreements (FSAs).
However, the latest FSA by Coal India promises only 80 per cent of fuel supplies. Of this, 65 per cent would be met from domestic mines, while 15 per cent would be imported.
siddhartha.s@thehindu.co.in
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