Coal auction may push up fuel price for power sector: ICRA

Says this in turn may put an upward pressure on cost of power generation and the retail tariff

The auction of 74 coal blocks is likely to witness an intense competition among bidding companies and the exercise may push up the fuel price for power sector, rating agency ICRA said today.

This in turn may put an upward pressure on cost of power generation and the retail tariff, it said.

In a report, ICRA said the bidding for coal blocks may be intense due to low execution risks and their importance for both operational and under implementation projects.

These blocks are from over 200 coal mines whose allocations were quashed by the Supreme Court, which termed their allotment as "arbitrary and illegal". The first round of auction involving these blocks would be completed by March 31.

"Given that the government is initially focused on concluding the auction process for identified mine blocks which are meant for the specified end uses, competition is likely to be intense for the affected project developers, both due to lower execution risks in such blocks and the importance of such mines in ensuring viability of both operational and under implementation projects," ICRA said.

As a result, the auction process is expected to increase the cost of coal for the power sector, which in turn would put upward pressure on price of generation and retail tariff, it said.

ICRA, however, said that the provision for auction and allocation of coal block for mining with 'sale purpose' should be favourable for the coal mining sector in the long run.

The process would enable the entry of private sector in coal mining business with better operational efficiency which would help to improve the availability of coal for the various end uses, the rating agency said.