Private power producers (IPPs) believe the methodology for rationalisation of coal linkages approved by the government earlier this week is unlikely so solve the fuel-related issues they face.

The mechanism designed to enable an optimum allocation of linkages for the IPPs received the nod from the Ministry of Coal two years after the government had approved the flexibility in utilisation of domestic coal in order to lower the transportation cost and in turn reduce power purchase cost for State distribution utilities.

“The underlying objective behind the exercise shall be to reduce the landed cost of coal due to reduction in transportation cost. The savings achieved due to this reduction of landed price of coal are required to be passed on to the Discom/consumer of power,” the Ministry said.

According to Sabyasachi Majumdar, Group Head, Corporate Ratings, ICRA Ltd, for every 100 km reduction in distance travelled for transportation of coal, variable cost of coal-based power generation for linkage-based plant is estimated to decline by about 10-12 paise per unit.

“The actual savings would vary depending upon the reduction in the coal transportation distance, given that the linked coal mines are at a distance varying from 100 km to 1000 km from the end user plants,” he added.

Experts suggest the scheme is likely to be taken up by those IPPs transporting coal over long distances, despite having mines at a closer location from a different coal company.

Grade and quality

The private players, however, say there are serious risks of not getting the coal of required grade and, most importantly, not getting sufficient quantity of coal.

“If I, for example, have to shift from Central Coalfields Ltd (CCL) to Western Coalfields Ltd (WCL), the latter does not have the required grade and quality of coal, and secondly, there is likelihood that instead of giving me required annual contracted quantity of coal, I will get less because they do not have sufficient coal supply. So while trying to reduce the coal cost you are ending up loosing the coal quantity, nobody will like to take this kind of risk,” an industry player who did not wish to be named told BusinessLine .

He added that the power plants are designed based on the designated coal mine which was decided at a time of setting up the plant. “Every coal mine has different quality of coal and it varies significantly, specially with the new environment regulations in place,” he said.

According to industry players, the scarcity of coal, insufficient railway infrastructure, severe evacuation constraints and serious chokes on the railway tracks remain the main issues for IPPs. While rationalisation of coal linkages may help select projects, the industry at large requires better infrastructure for coal transportation.

“This policy can only succeed when there is sufficient quantity of coal available and if the Railways has a transparent system of increasing the freight once a year, which is linked to a consumer price index (CPI), for example,” an industry player said adding that continuous increase in Railway freight in many cases makes landed cost of domestic coal higher than that of the imported coal.

According to an India Ratings and Research (Ind-Ra) report, India has continued to rely on imported coal for the power industry, although the coal imports for the sector declined to 43.6 mt in the nine months of FY18, from 49.9 mt in the same period a year ago.

CIL output

At the same time, it noted, the output of Coal India Ltd (CIL) has been on an increasing trend since August 2017 after falling to 37 mt in July 2017. In February this year, coal production by CIL rose marginally by 0.3 per cent y-o-y to 54.46 mt.

“Although the overall coal inventories level increased at end of February 2018, the number of plants with critical and supercritical levels further increased to 25 from 20 due to non-uniform distribution of coal across plants across the country,” Ind-Ra analysts said.

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