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Powermin tells regulators to factor in coal cost

he coal shortage in the country is finally going to hit the consumers in a big way. Union ministry of power (MoP) has directed all state electricity regulatory commissions (SERCs) including MERC to allow power companies to recover the cost of imported coal even if it exceeds the limits stipulated in power purchase agreements.

Almost all private power companies that have signed power purchase agreements (PPAs) with MSEDCL are seeking to hike their rates and with this decision the tariff is bound to go up. Coal India Limited (CIL) had recently reduced the minimum assured quantity to be supplied to generation companies. The government had asked the generators to import coal to meet the shortage. The cost of imported coal is far higher than that of domestic one. It has become costlier with sharp depreciation of rupee. Domestic coal can also be purchased through e-auction but is costlier than that supplied under a long term agreement.

In every PPA signed between a power generation company and a distributor there is a fuel cost variation pass through mechanism. This means if the cost of fuel increases or decreases the rate of power will increase or decrease accordingly. However, there is a ceiling to this variation. Usually it is not more than 10% or 15%.

However, with imported coal constituting a large portion of fuel and rates of domestic fuel also going up, the rates of old PPAs are no longer viable. The generators are finding it impossible to do business at these rates. For example, the PPA between Maharashtra Airport Development Company (MADC) and Abhijeet Group was signed at the rate of Rs 2.97 per unit in 2007. However, now Abhijeet Group says it cannot sell power at less than Rs 4.50 per unit.

In some cases the SERCs allowed the generators to increase their rates sharply while in many cases they have turned down petitions seeking hike in power rates. The commissions acknowledged the problems of the generators but pointed out that there was no law under which the PPA could be amended. The generators sought an intervention of MoP pointing out that they could not run their plants at a loss. The ministry then asked Central Electricity Regulatory Commission (CERC) to study the issue of coal shortage recommend a solution. CERC told the government it should ask generators to import coal and distributors and hence consumers should be made to bear the cost.


Source: The Times of India