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Coal Auction: Does it plug the fuel availability gap?

Ever since the Supreme Court struck down the "arbitrary" and "illegal" allocations of 214 out of the 218 coal blocks allocated since 1993, an air of uncertainty hung over the Indian industry. An approximation of 28,000 MW of generation capacity was directly affected by the de-allocation, and about Rs 2.87 lakh crore of investments hitherto made in the coal sector was put at risk overnight. In view of this and the power situation as precarious as ever, Government's ambitious agenda of doubling power capacity, transforming India into a global manufacturing hub and ensuring '24X7 power for all' is seen as ambitious agenda.

Auction of coal blocks through transparent and simpler norms has accrued Rs 2.07 lakh crore for the exchequer through 31 coal blocks in 2 phases. As per the projections, the auction mode will prove to be a boon for the producers in the long run - while the payments for the blocks raised through auction will depend on the actual production, the actual profits will be guided by the global coal prices - and for a resource which is at once scarce and reliable - prices will only move up. Add on the point that Coal India increased its production by 7% in the last 12 months, another sign of plugging the gap between availability and requirement of coal, which has been bane of the industry.

read these as sign towards India going towards becoming less dependent on the imported coal. This is very critical as the PPAs are signed for 25 years and even a 5% cost variation in terms of imported coal means the tariff is no longer viable. This variance leads to distress and an environment where power generators are willing to let the asset be idle than run into losses.

India would be better served by developing and ensuring availability of domestic coal and the auction is a first step in that direction.

source: http://economictimes.indiatimes.com