Letters: Facts on coal price pooling

The editorial “A step backward: Price pooling of coal is a bad idea” (February 7) contains certain factual inaccuracies on the coal pooling mechanism approved in principle by the Cabinet. The presumption that the proposed price pooling of coal may give undue benefit to private developers is ill-founded. The mechanism only seeks to alleviate the domestic coal deficit to a certain (but not full) extent. The real benefits will be passed on to the consumers who are expected to receive about 35 to 45 billion units of additional power generation over the next two years. The cost of alternate power (through diesel gensets) would be Rs 12-13 per kwh against the cost of power of Rs 3.5-4 per kwh using blended fuel (through the pooling mechanism).

Further, you have said “those who had set up power plants that depended on a particular price of imported coal are in essence handed a bailout by the government”. This assumption is incorrect since the pooling mechanism is limited to the amount of domestic coal promised under awarded Letters of Assurance (LoAs) by Coal India.

Even for some coastal plants falling under the proposed mechanism that were set up with partial domestic linkages, the coal supplies under the pooling mechanism is limited strictly to the quantity assured under the LoAs. These plants will still need to import the remaining coal quantity on their own, exclusive from the pooling arrangement. Therefore, the contention that “those power producers who have international coal assets would be able to sell coal from those mines abroad elsewhere and reap market price-linked benefits, while benefitting from pooling at home in India” does not arise. There is no correlation between international coal assets of a power producer and a coal pooling mechanism that seeks to mitigate the shortfall in domestic coal supplies assured by legally-binding LoAs.

In that context, the statement “Having failed to factor in sovereign risk… it cannot, surely be anyone’s case that these plants’ owners should not pay a penalty…” is incorrect. The question of sovereign risk does not arise when coal supplied under the price pooling mechanism is limited to the amount of domestic coal under awarded LoAs.

Ashok Khurana,

Association of Power Producers, New Delhi

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