Coal pricing formula caused Rs 8,400 cr under-recovery

30 October 2017

The power producers are now asking for a separate index for deciding the price of coal and its transportation, because, they are claiming, they pay more than what the indices work out.

The cost of coal comprises several elements before it lands at the power unit. These include taxes imposed by states, the cess imposed by the Centre and states, the coal terminal surcharge, the busy season surcharge, and the development surcharge during various demand seasons.

The clean energy cess is imposed to recover the cost of investment in renewable and environment projects. The tax and surcharges on transportation are done by the railways in accordance with rake availability and seasonal demand for coal and wagons for it.

“The faulty coal and transportation price escalation index, where presently 49 per cent of coal costs and 21 per cent of fuel transportation costs are not covered, has been leading to under-recovery to the tune of Rs 8,400 crore for 12,000 Mw of installed generation capacity,” said the letter by the Association of Power Producers (APP) dated September 28.

Coal India and the ministry of coal did not respond to the query.

Cases on allowing such costs as pass through are pending in several courts and regulatory bodies. The power developers have asked for passing through of these charges under “change in law”.

The National Tariff Policy, 2016, has laid down that any change in cost after a project has been awarded would come under the category of “change in law” and would be allowed to be passed through in the final cost of power. However, any change in power tariffs requires approval from either the state or the Central Electricity Regulatory Commission (CERC).

Power procurers challenge such moves because they escalate power rates.

The CERC in an order of October last year had observed that the index for deciding the cost of coal and its transportation needed revision.

“The commission also direct the staff of the commission to carry out an exercise for revision of methodology for computation of escalation indices for the non-coking coal used in power generation which will take into consideration the various elements which result in escalation of price of coal, the existing mechanism to compensate such escalation, the difference between the actual escalation in respect of the grades of coal used by the power generators and the actual indices allowed by the commission, and whether the power generators should be given relief with effect from 2014 and if so, in what manner. The staff will submit a report on the above within a period of two months to the commission,” said the order.

There has been, however, no report as yet since the order in October last year.

AT THE COALFACE

• Power producers question the criteria of deciding coal prices
• Currently, WPI is base index for pricing of all grades of coal
• Index should include various seasonal surcharges, central tax and cess, transportation cost, demand power developers
• Central Electricity Regulatory Commission in process to draft a separate index for coal

Source: Business Standard