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Imported coal-based UMPPs may not benefit from price pooling

4,000MW projects of Tata Power, Reliance Power may not feature in Central Electricity Authority list
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First Published: Mon, Nov 19 2012. 10 17 PM IST
Some states have indicated they don’t want the coal price pooling mechanism as it could raise power prices for consumers. Photo: Sam Panthaky/AFP
Some states have indicated they don’t want the coal price pooling mechanism as it could raise power prices for consumers. Photo: Sam Panthaky/AFP
Updated: Tue, Nov 20 2012. 01 23 AM IST
New Delhi: The 4,000 megawatts (MW) power projects of Tata Power Co. Ltd and Reliance Power Ltd may not benefit from the proposed pooling of imported and domestic coal prices by Coal India Ltd, as they may not feature in a list prepared by India’s apex power sector planning body.
Both Tata Power and Reliance Power’s imported coal-fired projects, referred as ultra-mega power projects (UMPPs), were envisaged as fast-tracked plants requiring investments of around Rs.20,000 crore each. Tata Power is building the plant at Mundra in Gujarat and Reliance Power at Krishnapatnam in Andhra Pradesh.
The Central Electricity Authority (CEA) has selected only coastal power projects being developed by public and private companies to benefit from the proposed pooling of coal prices, a power ministry official said, requesting anonymity. The Tata and Reliance projects do not feature in its list, he added.
Spokespersons for both Reliance Power and Tata Power declined to comment.
“The imported coal will be given to certain identified stations near the coasts. It could be private projects coming up on the coast that were awarded through the case 2 bidding route, wherein they were assured domestic coal linkages. The difference in prices will have to be borne by other projects in the country,” the ministry official said. “CEA has already identified projects which will get this imported coal. However, UMPPs don’t fit in that list.”
Bids for power procurement are sought in two ways. In case 2 bidding, such as for domestic coal-based UMPPs, resources such as land, fuel and water linkages are identified and in some cases also provided to the developer quoting the lowest tariff.
In case 1 bidding, the quantum and time period of power procurement is identified, but fuel type, sources and the plant location are not specified.
Another government official said that imported coal-based UMPPs will not benefit from the coal price pooling proposal, which will likely result in higher electricity tariffs.
“It (coal price pooling) will result in an electricity tariff increase of 13 to 15 paisa for those projects who will share the increased cost of imported coal,” this official said.
“Price pooling could increase the cost of coal by Rs.90 to Rs.100 per tonne. The estimate for the price rise is based on the current price of coal and the current estimated demand for imports by Coal India that stands at 18 million tonnes a year,” an executive of the state-owned miner said on condition of anonymity.
The financial viability of power plants fuelled by imported coal has been affected because fuel costs have exceeded projections.
Tata Power and Reliance Power bought coal mines in Indonesia to feed their plants. But coal imports became expensive for the firms when the Indonesian government last year started levying higher royalty and income tax.
While work has stopped at Krishnapatnam, Tata Power has approached the Central Electricity Regulatory Commission (CERC), India’s apex power sector regulator, to consider increases in power tariffs.
“Pooling of coal pricesis not a bailout. It is a temporary mechanism till the domestic coal mining comes to speed to meet the country’s demand,” said another power ministry official who didn’t want to be identified. “Coal India currently supplies 347 mt (million tonnes) with the balance to be met by imports,” this official said. “Coal India expects to meet 80% of coal demand by 2016-17. There will be around Rs.90 per tonne difference between the price of domestic coal and imported coal. Also, this mechanism will reduce around 50% cost of domestic coal transportation from the mines to the coastal sites and also from the coast to inland projects.”
Coal demand in India is expected to grow from 649 million tonnes per annum (mtpa) now to 730 mtpa in 2016-17, making the country heavily dependent on imported coal, given the projected local availability is only 550 mtpa.
The government wants to set up 16 large power projects to help bridge the country’s yawning power deficit. Four of these have been awarded—at Mundra, Krishnapatnam, Sasan in Madhya Pradesh and Tilaiya in Jharkhand. Of the 12 new projects to be awarded, five are expected to be based on imported coal.
The West Bengal government has rejected the coal price pooling proposal and some other states have indicated they don’t want the system as it could raise power prices for consumers.
Coal India’s independent directors had also objected to any pooling of prices.
“Yes, price pooling is under active consideration. If I speak more than that, it will get a tenor of its own,” S.K. Srivastava, coal secretary, said at a coal conference in New Delhi on Monday. “We are working on it. Power ministry is working on it, and after that we are going to have our views on it. Let us face the stark fact, we will need to rely on imported coal.”
Analysts are not enthused with the idea.
“The pooling of domestic and imported coal prices sounds a step back into the past from moving a step towards greater market orientation,” said Dipesh Dipu, a partner at Jenissi Management Consultants, a Hyderabad-based energy and resources-focused consulting firm. “There are a large number of companies in the power sector that are fundamentally different, some with integrated coal assets in India and abroad while some are totally dependent on domestic supplies. Pooling may make better sense when all procurements are through one agency that takes care of domestic as well as imported supplies, and when the imported coal is rationed proportionately for all.”
Establishing pooling equivalents may itself be challenging, he added. “Coal as a commodity has large variances in energy content and other parameters like moisture content, ash content, fixed carbon, volatile materials, sulphur content, hardgrove grindability index among others. These vary from source to source.”
Reliance Power has sued HT Media Ltd, publisher of Mint, in the Bombay high court over a 12 May 2010 front-page story in Mint that it disputed. HT Media is contesting the case.
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First Published: Mon, Nov 19 2012. 10 17 PM IST
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