Coal news and updates

Reliance Power has booked a year's coal supply for its 600MW plant at Butibori through forward e-auction organized by Western Coalfields Limited (WCL). The PSU has been holding e-auction for spot delivery where consumers can pay a premium and buy coal over and above the contracted quantity.

 

However, this was the first ever forward e-auction for a cost plus mine, which means future supplies could be booked. Under the cost plus system, coal is supplied through a dedicated mine, but for this a consumer has to pay a price which can ensure rate of return of 12% over the basic cost. This almost doubles the price. As WCL put around 6 lakh tonne of coal on cost plus basis for auction, Reliance Power emerged as the single bidder bagging 5 lakh tonne till July 2015. This will entail a total payout of Rs 130 crore for the entire period. With 5 lakh tonne it has secured half its required supply for Butibori.

 

Reliance could get the power at almost same level of the base price due to lack of bidders. Normally, not many players are interested in cost plus coal auction because of the prohibitive price, said a source.

 

Curiously, the company also has a fuel supply agreement (FSA) ready with WCL, which means it need not go for an e-auction and can get a long-term supply in the normal course. However, sources say it has not gone ahead with the formalities, and has rather moved an application to shift the linkage to South East Coalfields Limited (SECL), also a subsidiary of Coal India Limited (CIL) with its headquarters at Bilaspur in Chhattisgarh.

 

This is how Reliance will benefit out of it. SECL does not have a cost plus system as there is abundant coal. So, Reliance can get coal at over Rs 1,000 a ton which is the notified price. By even by including the transportation cost, it comes to a cheaper proposition.

 

For buying the cost plus coal from WCL, it will have to shell out Rs 2,600 a ton. Moreover if the company gets into a linkage agreement it shall also have to furnish a bank guarantee of over Rs 40 crore, for which Reliance Power is wary. It has been bargaining with WCL to relax the conditions for encashing the bank guarantee. If a consumer does not lift the committed quantity of coal, WCL can encash the bank guarantee as a security. However, the coal PSU has refused to change the conditions.

 

In the meantime, Reliance has moved the application to shift the linkage to WCL. In such a scenario it is a win-win situation for Reliance. It has the cost plus coal to meet one year's requirement without a guarantee, and once a linkage from SECL is established, cheaper fuel can be tied up for long term. An email and text message to a Reliance Power spokesperson went unanswered.

 

WCL sources say even other consumers are wary of furnishing the bank guarantee for getting cost plus coal. These include NTPC which needs coal for one of its 500 MW units at Mouda with recently state-owned Mahagenco also having raised the issue.

 

 

Source: ToI