Power sector to get pass-through

Base bid price during first year open to escalation on increased fuel cost

The government is likely to allow bidders of coal blocks to seek adjustment in the fuel cost in power tariffs. In the draft rules for deciding the floor and reserve price for coal block bidding, the ministry of coal has provided a provision for the regulator to treat bid price as "change of law" and make changes in the final tariff charged from consumers.

Reverse auction bidding methodology could be adopted for the power sector to ensure that there is less impact on tariff.

To cap the price of bidding for the power sector, the ministry has formulated the ceiling price as a reflection of production efficiency or the cost of mining. In the draft rules for evaluating the bids, the government would compare the net present value (NPV) of the coal. The base price for this bidding during the first year would be open for escalation on account of increase in fuel cost during the period of power purchase agreement.

COST HANDLING

• Adjustment in fuel cost in power tariff allowed to power sector regulator
• Base bid price for first year open for escalation
• Coal bidding formula to be placed in Cabinet likely on Wednesday
• Reserve price of coal to be based on prices of Coal India for the equivalent grade of coal

The ministry would place the formula for deciding the coal bid price in the Cabinet this week, Coal Secretary Anil Swarup told reporters last week.

The reserve price of coal would be based on prices of Coal India Limited (CIL) for the equivalent grade of coal. Successful bidders are supposed to pay upfront a fixed reserve price of Rs 100 per tonne of coal, as per actual production. The royalty payable would be governed by CIL notified price.

For other sectors -- steel, sponge iron, cement and captive power producers -- the intrinsic value of the coal will be calculated by computing its NPV based on discounted cash flow method. Ten per cent of this intrinsic value would payable upfront by the successful bidder.