Pass through for coal import gets CCEA nod

Expect higher electricity prices across the country

Written by ENS Economic Bureau | New Delhi | Published: June 22, 2013 2:40:34 am

The government has allowed power project developers to pass on the cost of imported coal to customers,a move that would spell relief for private players that have set up generation projects based on expensive coal from countries such as Indonesia and Australia as fuel. The proposal,cleared by the Cabinet Committee on Economic Affairs here on Friday,would,however,translate into higher electricity prices for consumers across the country.

A proposal to raise gas prices,which was to be taken up by the CCEA,has been deferred for now.

The plan to allow utilities to pass on the cost of imported coal was taken up as an alternative to a coal price-pooling plan circulated earlier,which had to be junked due to opposition from some states. The proposal,which would benefit newer projects cumulative amounting to an installed capacity of 78,000 mega watt (MW) slated to run partially or fully using imported coal as feedstock,is being seen as more acceptable to stakeholders. This is because fuel pass-through will be on a case-by-case basis as against the broad-based increases in fuel cost under coal price pooling.

The exact rise in tariff would differ from station to station based on the quantity of imported coal utilised. Finance minister P Chidambaram said after the cabinet meeting that there “will be small increase in power tariff” but that it was “better to have our power plants working and producing power or keep them shut down after investing thousands of crores”.

Although the coal ministry maintained that the tariff increase would be under 20 paise per unit,a power ministry official pegged the hike to close to 40 paise a unit.

While the details of the mechanism are still being worked out,the exercise would involve project developers having to renegotiate the power purchase agreements or PPAs with distribution utilities contracted to buy electricity from them,most of which are owned by states. Opposition from some states is also being factored in. The power ministry has said that it would be issuing an appropriate advisory to both the central power regulator and regulators in the states to enable the commissions “to decide the pass through of higher cost of imported coal on case-to-case basis”.

According to the government,this is an interim arrangement for tiding over the coal scarcity in the Twelfth Five-Year Plan period (ending March 2017). The ultimate goal is to ramp up the domestic production of coal,which would obviate the use of expensive imported coal.

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