Coal supply via MoUs to continue till Jun 30

However, industry players bat for long-term policy framework to end uncertainty

Coal supply via memoranda of understanding (MoUs) with plants without linkage and also for those plants with tapering linkages will continue till June 30 for independent power producers (IPPs) of about 9,000-megawatt (Mw) generation capacity.

The coal supply based on the MoU route for both these categories, which was extended from June 30, 2015, had ended on March 31.

The coal ministry had in its communication last week said, “In order to ensure that there is no disruption in coal availability to these plants, the MoUs, which expired on March 31, 2016, shall have its term extended not beyond June 30, 2016, so as to facilitate smooth transition to the special forward e-auction system of Coal India (CIL).”

The ministry had said coal supplies to the 4,660-Mw category and similar power plants that do not have fuel linkages would continue on MoU basis till March 31, or until a policy was formulated whichever. Similarly, coal supplies through MoUs were also continued for plants having erstwhile tapering linkages (about 4,340 Mw) till March 31, or until a policy was formulated. In both these cases, the plants commissioned or to be commissioned in 2015-16 and having long-term power purchase agreements were eligible to get coal.

However, industry players are not amused with the coal ministry's move, saying that ad-hocism should be stopped. Some argued that with a coal block, an operator can reduce the development and O&M cost of a mine. However, with the auction of linkage, there is no such benefit as all that work would be done by Coal India.

Association of Power Producers’ Director-General Ashok Khurana told Business Standard, “Long-term policy framework should be announced as early as possible to end the uncertainty in the minds of power project developers.”

PwC Partner (Grid) Kameswara Rao said the extension was transitional and covered a limited set of operating plants that had a long-term power purchase agreement (PPA) with distribution companies, which meant any benefit of lower pricing would flow largely to consumers. But, he noted, “The real issue is that auction of coal linkage, unlike that for a coal block, generates no economic benefit and only prices in the need of the generator. Further, given the pass-through clauses in PPAs, it will only push up tariff for consumers.”

Rao said to contract long-term base-load capacity, auction of an integrated arrangement with coal mining and power supply, such as with the ultra-mega power project, was the most efficient.