New Delhi: The finance ministry and the Planning Commission support the coal ministry’s view that the government should reject a plan that seeks to sell coal to power plants at a uniform price by taking a weighted average cost of the fuel from local and imported sources, according to coal secretary S.K. Srivastava.
The ministry and Coal India Ltd are of the opinion that the fuel should be imported on a so-called cost-plus basis and the incremental power-generation costs should be passed on to the end-consumer by the electricity producers. If implemented, the plan could lead to a significant rise in the cost of power generation in the country.
The coal secretary’s statement is significant considering the fact that on 6 February, the cabinet had given an in-principle approval to pooling coal prices. The cabinet had, however, asked the coal and power ministries to come back with specifics on the proposal. Srivastava was speaking on the sidelines of an inter-ministerial panel on coal linkages.
A cost-plus price is determined after factoring in the desired profit over and above the full cost of a commodity. Price pooling, on the other hand, refers to the sharing of costs, in part or in full, by the users of a certain commodity. In effect, the commodity gets a uniform price throughout a region.
The government has been debating the issue of coal price pooling to bring uniformity in prices, since the financial viability of power plants fuelled by imported coal has been affected because the price of the fuel has exceeded projections.
Coal price pooling will see power tariffs rise by as much as 13 paise a unit, Mint reported on 6 February.
According to the earlier proposal discussed at a February cabinet meeting, till local coal production meets the country’s demand, only those power projects located near the coast and featured on a Central Electricity Authority list will be eligible to benefit from the proposed pooling of coal prices. Price pooling could increase the cost of coal by Rs.90-100 per tonne.
The power ministry declined to comment on the matter. “The issue is before the cabinet. The coal ministry can propose this issue to them. The idea of coal pooling was thought of as there were no better options available. We are open to any good option,” said a power ministry official, requesting anonymity.
If the government does agree to the coal ministry’s view, the cost of power generation will go up significantly, said Dipesh Dipu, an energy analyst and a partner at Jenissi Management Consultants. If a producer generates electricity at Rs.2.50-3.20 per unit when coal prices are pooled, it would increase to Rs.3.50 per unit for consumers, Dipu said.
“Power producers who procure imported coal would find it hard to sell costlier electricity to state distribution companies,” he said. “Private companies most affected would be the ones who have set up plants near the coast. Having said that, one assumes that they would have factored in all the risks,” he said.
A top Coal India executive, who did not want to be identified, said the company had never favoured coal price pooling. “Either ways, however, it does not impact us. We remain no more than a clearing house,” the executive said.