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Reverse-auction of coal to power companies may be scrapped

In a radical change from the policy of allocating coal assets to private power companies through reverse-auction, the government is considering steps to use the mines as well as supplies from Coal IndiaBSE as a lucrative incentive for states to adopt distribution reforms.

Under the proposal, states will have the freedom to select companies that offer the lowest power tariff based on the coal from these blocks - similar to the model adopted by the Centre to allot ultra mega power projects (UMPPs), where coal blocks come bundled with the projects. However, unlike in the case of UMPPs, the companies don't have to compulsorily build new plants and can use the coal from the mines to run units that are idling for want of fuel. The same model will be followed to award coal supplies from Coal India as well.

A senior government official said this would help state distribution companies procure cheaper power and power producers get coal with an assurance of power purchase.

"This proposal kills two birds with one stone," he said. "It solves the problems of fuel supply and lack of power purchase agreements in one go. This proposal is cleaner than the reverse e-auction."

The proposed system, for which the coal and power ministries plan to approach the Cabinet, is expected to offer a big boost to the $7 billion (Rs 46,200 crore) debtrecast scheme launched this month to help make state utilities viable. It is expected to revitalise the power sector, where large corporate houses had invested heavily but suffered due to fuel shortage, distribution bottlenecks and transmission constraints, putting pressure on companies and lenders.

Power plants with over 12,000 mw capacity are stranded as state power distribution companies have not floated enough bids seeking power supply.

Industry insiders said the proposed model is better than the reverse electronic auction, but it has to be implemented in a way that old and new plants are  able to compete on an equal footing.

Under the reverse e-auction, the Centre awards the coal block to the company that quotes the lowest mining charge. Power producers are allowed to add this mining cost to the price at which they sell power to distributors.

The new proposal aims to bring tariffs down to benefit distribution companies as targeted under the Ujwal Discom Assurance Yojana (UDAY), and spares the government from further litigation that arose after coal blocks were awarded through reverse e-auction.

The coal ministry has already sent a list of seven lucrative coal blocks in Odisha, Chhattisgarh and Jharkhand to the power ministry for distribution to the states. The blocks will be awarded to state governments depending on their negotiations with the Centre when they agree to become a part of the UDAY scheme. More blocks are likely to be earmarked to states for power generation purpose.

Under the debt-recast and reform package announced to revive utilities, states will be given strong incentives like cheaper power and more coal if they adopt the scheme and take over 75 per cent of the debt of ailing discoms.

"A welcome move, this will ensure that plants are not stranded for want of PPAs (power purchase agreements)," Ashok Khurana, director-general of the Association of Power Producers, said on the new coal allotment policy. "However, the bidding framework would need a review to ensure that coal is mined in the mosteffective manner."

source: http://economictimes.indiatimes.com