Coal news and updates

Power producers allowed to source fuel from Coal India via e-auction

 With pithead stock piling up at Coal India’s mines due to lack of demand from contracted power sector buyers, the Centre has further relaxed norms for the power sector to source the domestic fuel.

By a notification issued on August 21, the Coal Ministry allowed CIL to open a dedicated window for e-auction of fuel to the power sector. A total of 10 million tonnes of coal, capable of generating nearly 2,000 MW, will be sold through the window this fiscal.

Any generation utility — including those having a fuel supply pact (FSA) with the coal major and the awardees of the recent auction of coal blocks — can buy the fuel through e-auction backed by sales contracts of varying tenure to either discoms or traders or power exchanges.

Coal India currently offers to supply up to 75 per cent of the fuel required (annual contracted quantity) by a utility to run the power station at 80 per cent plant-load factor (PLF) for a 15-year period. This is for utilities commissioned after March 2009. The FSA is given effect only against long-term power purchase agreement (PPA) entered by the generation company. And, since discoms are not showing much interest in entering long-term PPAs, many such plants are denied access to domestic coal.

Market making

Discoms are, however, showing interest in term buying to capitalise on low tariff opportunity in the open market. With huge capacities idling due to lack of demand, many private producers are ready to sell electricity at rates that merely recovers the fuel cost. However, non-availability of domestic fuel is further squeezing their survival opportunity.

The new coal e-auction window hopes to address the demands of both these segments.

The gencos having long- and medium-term electricity sales contracts (beyond one year) are allotted half of the total e-auction quantity, at a minimum of 20 per cent premium (reserve price) over CIL’s notified price. The rest will be offered to utilities having short-term contracts (less than one year) at a minimum of 40 per cent premium.

“The excess supply of electricity and projected growth in coal production make it imperative to steadily relax norms for availing domestic fuel,” said an analyst associated with a multinational bank.

He, however, warned that the success of the policy will rest on CIL’s ability to push up production. “Even if CIL reaches 850 million tonnes production mark (in five years), there will be sufficient fuel to meet domestic growth,” he said.

Meanwhile, the auction will create an opportunity for CIL to boost profits that have been declining due to increasing quantities of low-margin sales through FSAs to the power sector.

A back-of-the-envelope calculation suggests 10 million tonne sales at an average premium of 30 per cent over the average CIL price of ₹1,295 a tonne (June 2015), will fetch the company an additional ₹300-crore revenue. The actual profits would vary depending on the quality of fuel sold.

source: http://www.thehindubusinessline.com