Cabinet nod for passing coal import cost to power consumers news
21 June 2013

The cabinet committee on economic affairs (CCEA) today reportedly agreed on a mechanism to allow electricity producers to pass on to consumers the cost of expensive imported coal used by them.

Under the mechanism, the perennial shortfall in the supply of domestic coal will be met through imports, and the power producers will be allowed to pass through the higher cost to state electricity boards or other customers.

This mechanism would be applicable for nearly 78,000 MW of thermal-electricity generating stations commissioned after 2009.

While the thermal power plants commissioned after 2009 have to source 80 per cent of coal from Coal India Ltd, the state-run coal producer has agreed to meet 65 per cent of the thermal plants' coal requirements from domestic mines and the rest 15 per cent from imports. This raises the cost of coal for both CIL and power producers, and hence the passing on of higher cost of coal t power consumers.

Moreover power companies need to secure coal supplies to meet the remaining 15 per cent of their coal requirements. The entire cost of such imports is proposed to be passed on to the consumers, government sources said.

According to industry watchers, if a pass-through mechanism is implemented, it would help power companies such as Adani Power, CESC, GMR, Lanco, Reliance Power and JSPL. However, there would be no impact on the country's largest power producer NTPC because it is already operating on the cost-plus model.

The latest fuel supply agreement (FSA) put forward by Coal India promises 80 per cent fuel supplies. Of this, 65 per cent would be met from domestic mines, while 15 per cent would be imported.

India is the world's third-largest producer of coal and more than half the country's power comes from coal-fired thermal power plants. But sagging domestic production of caol is forcing power producers to imports amidst frequent power cuts in Asia's third-largest economy.

The power price hike comes as the UPA government is faced with a number of economic problems, including rising prices of consumer goods, rising imports and consequent increase in the country's current account deficit.

Fuel supply situation and costs would, however, be monitored on a quarterly basis and the power producers would be required to move the regulator for change in tariffs.

Meanwhile, the governmant has deferred a decision on a proposal to raise prices of natural gas produced in the country following a controversy over the government move.

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Cabinet nod for passing coal import cost to power consumers