Govt wakes up to captive miners profiteering

Mulls clause to mandate participation in tariff-based bidding for power

The brouhaha over coal block allocations has goaded the government into correcting the policy imperfections that have long prevailed in India’s coal mining sector. It is planning a clause to make it mandatory for captive miners to take part in tariff-based bidding for power.

A few miners have been selling power produced through coal from their captive mines in the open market to make profits. The coal ministry now plans to add the mandatory clause in captive miners’ allotment letters. “The power ministry has asked the coal ministry to put a condition in the block allotment letters that captive coal block allottees will have to participate in tariff-based bidding process,” a senior official close to the development told Business Standard. He added there were eight to 10 companies that held coal blocks, but continued to sell merchant power, an industry term used for electricity sold outside long-term power purchase agreements (PPAs) with power distributors.

A few months earlier, the government had notified miners to take part in tariff-based bidding, after the coal and power ministries agreed on the need to pass on the benefit of cheap captive coal to consumers. “The problem is that the original allotment letters issued to captive miners had no conditions attached. The letters did not specify whether the companies were free to sell power through PPAs or in the merchant market or through tariff-based bidding. So, legally they have not done anything wrong,” a senior coal ministry official said. The coal ministry would make changes in the allotment letters through an addendum to make participating in tariff-based bidding mandatory.

PLUGGING THE LOOPHOLE

• The original captive block allotment letters had no conditions attached, leaving room for companies to sell power in merchant market 
• Govt says 8-10 firms holding captive blocks have been selling power in open market to book profits 
• JSPL is one such block allottee. The company denies any wrong-doing; argues difference in cost of coal from captive block and that bought from CIL is not huge 
• Including JSPL, blocks allotted to 22 other firms have started production

The official said a case in point was Jindal Power Ltd (JPL), an arm of Congress MP Naveen Jindal-promoted Jindal Steel & Power Ltd (JSPL). JPL has been operating a 1,000-Mw coal-fired plant at Chhattisgarh’s Raigarh since 2008. The plant uses coal from two captive mines — Gare Palma IV/2 and Gare Palma IV/3 — located seven km away.

JPL sold power at the highest price of Rs 4.30 a unit in 2010-11 and Rs 3.85 a unit in 2011-12. “The average rate per unit has fallen over the years and works out to Rs 3.40 a unit now, compared to Rs 3.85 last year,” said a company spokesperson. The firm’s coal cost comes to Rs 650 a tonne, including Rs 147 royalty, against the cost of Rs 700 a tonne when buying coal from Coal India. He added the company had no choice but to sell power in the open market, as it did not get any long-term PPA.

A total of 29 blocks allotted to 22 companies had started production by March this year. These firms include BLA Industries, Monnet Ispat & Energy, Prakash Industries, CESC, Jayaswal Neco, SEML, Usha Martin, Sunflag Iron & Steel, Electro Steel casting, BS Ispat, Shree Veerangana Steel Ltd, Hindalco, Damodar Valley Corporation and state-owned utilities of Punjab and West Bengal.

Business Standard could not independently ascertain which of these firms had made profits by selling power from captive coal in the open market. But the cost of generating power by utilising coal from a captive block currently works out to Rs 2-3 a unit, or even less, depending on a mine’s stripping ratio. On the other hand, the average weighted price in the open market has come down from Rs 5-6 in 2008 to under Rs 3 a unit now.