Govt approves new coal linkage policy, pushes nuclear power plants

The new coal linkage policy and push for nuclear power furthers the Narendra Modi govt’ commitment on good governance and move away from fossil fuels


The new coal linkage policy and push for nuclear power underscore India’s changing energy policy—from fossil fuels to renewable energy. Graphic: Ahmed Raza Khan/Mint
The new coal linkage policy and push for nuclear power underscore India’s changing energy policy—from fossil fuels to renewable energy. Graphic: Ahmed Raza Khan/Mint

New Delhi: The Union Cabinet on Wednesday approved a transparent mechanism for coal allocation and signalled a renewed focus on nuclear power generation.

At the meeting, the Cabinet Committee on Economic Affairs (CCEA) secured coal supplies to stranded power projects and approved allocation of such linkages through an auction process.

Linkages are awarded to projects which do not have captive coal mines and need to source coal commercially from state-owned Coal India Ltd (CIL).

A cabinet meeting chaired by Prime Minister Narendra Modi also approved the addition of 7,000 megawatt (MW) of nuclear capacity that can potentially generate up to Rs70,000 crore of orders for domestic industry.

Not only do these two key decisions signal the government’s commitment to good governance, the accent on nuclear power emphasizes its commitment to move away from fossil fuels. This aside, it also opens up new investment opportunities for Indian businesses, which have been struggling to find its mojo.

“Today’s decision by the government will further enable Indian industry to mature to global standards and in the process develop and nurture Indian skill and talent in the nuclear sector,” said S.N. Roy, whole-time director, Larsen & Toubro Ltd, in a statement. “It will also result in developing supply chain through small and medium industries, thus creating much needed job opportunities.”

Of India’s power generation capacity of 326,848.53MW, two-thirds, or 217,492.26 MW, is fuelled by coal, with renewable energy accounting for 57,260.23MW. Nuclear energy accounts for only 6,780MW.

India will construct 10 indigenous units of pressurized heavy water reactors (PHWRs), each with a capacity of 700MW, in a “fully home grown initiative”, the government said in a statement. It would be one of the flagship projects under the ‘Make in India’ initiative.

This comes in the backdrop of measures taken by the National Democratic Alliance (NDA) government to encourage the generation of clean power, including wind and solar energy, as part of its strategy to reduce carbon emissions.

“Allocation of linkages for power sector shall be based on auction of linkages or through Power Purchase Agreement (PPA) based on competitive bidding of tariffs except for the State and the Central Power Generating companies and the exceptions provided in Tariff Policy, 2016. Coal drawal will be permitted against valid Long Term PPAs and to be concluded Medium Term PPAs,” the government said in a separate statement.

The plan for these coal linkages, through which projects get assured supply of the fuel at a discounted price, has been in the works for some time now.

“Coal linkages, for IPPs (independent power producers) having PPA based on imported coal, shall be made available through a transparent bidding process,” the statement added.

This comes in the backdrop of a Supreme Court judgement that disallowed Tata Power Co. Ltd and Adani Power Ltd from raising power tariffs to compensate for expensive imported Indonesian coal.

“One of the biggest beneficiary of the policy will be projects with imported coal-based PPAs. This will provide an opportunity for them to migrate to domestic coal, thereby reducing their exposure to price vagaries of imported coal,” said Abhishek Poddar, a partner at consulting firm A.T. Kearney Ltd.

Earlier, the process of selecting companies that were assured coal supply was as subjective as the process for allotting captive coal blocks. The NDA reworked the regime, introducing coal mine auctions after the Supreme Court in September 2014 scrapped more than 200 coal field allotments.

“When the Supreme Court cancelled coal blocks in 2014, it was decided that the wealth should be distributed fairly and on that basis the coal blocks were auctioned and the profits were to be directed towards development and upliftment of the poor,” power, coal, mines and renewable energy minister Piyush Goyal told reporters.

Experts welcomed the move.

“A key provision of the policy is also to have auction for existing PPA holders based on discount to already prevailing tariff, which had built up huge risk premiums due to uncertainty around coal supply in the past. This would directly benefit the electricity consumers,” said Debasish Mishra, partner at Deloitte Touche Tohmatsu India Llp.

“Market orientation of coal pricing in domestic market has been a long overdue reform. In the past this had led to distortions such as higher demand in a supply constrained market,” added Dipesh Dipu, partner at energy-focused Jenissi Management Consultants.

The cabinet also approved a maternity benefit programme announced by the prime minister in his address to the nation on New Year’s Eve under which all pregnant and lactating mothers across India will get financial assistance of Rs6,000. The government estimates the programme will cost Rs12,661 crore (between January 2017 and March 2020), of which the centre will spend Rs7932 crore.

“The scheme intends to provide support to the mother for safe delivery and immunisation of her first child,” said an official statement.

Further, the cabinet approved a Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting. The convention is the outcome of an OECD project to check tax evasion through the exploitation of gaps in tax rules of different countries.

The cabinet approved an amendment to the Public Premises (Eviction of Unauthorised Occupants) Act, 1971, which will allow easier eviction of occupants of government premises beyond their official tenures.

In another decision, the cabinet approved the setting up of an Indian Agricultural Research Institute campus in Assam at an estimated cost of Rs155 crore. The institute will work towards resolving agrarian challenges and complexities of north-eastern India in coordination with all existing central and state government institutions.

The government also approved two railway projects, in Uttar Pradesh and Maharashtra, which will involve the construction of new lines and electrification of existing routes. The cabinet cleared a restructuring package for Hindustan Organic Chemicals Ltd, a loss-making public sector unit, which involves shutting down non-viable operations.

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