Changed policy to allow power from CIL coal to be traded in short-term market

28-Jan-2019

The ministries of coal and power have agreed to a slew of reforms suggested by the Cabinet Secretary PK Sinha-led panel, including allowing use of Coal India (CIL) contracts for short-term electricity trade, in a bid to resolve fuel stress at power plants.

The coal ministry is expected to move Cabinet soon to alter the coal allocation policy – Scheme for Harnessing & Allocating Koyla Transparently in India (Shakti) — to let power projects trade electricity generated with CIL coal in short term markets, including exchanges, a government official said. The decisions were taken early this month at a meeting of a Group of Ministers on power sector stress alleviation headed by finance minister Arun Jaitley.

Officials said power producers will be able to meet debt obligations in the near-term and auction of coal supplies with aggregated power purchase agreements (PPAs) will alleviate stress in the long run. An executive with a private power firm said the decisions will mean radical reforms.

Currently, domestic coal allocation is provided for plants with long-term PPAs only. The restriction on merchant power plants, introduced during days of acute coal shortage for power plants, was lifted in 2017 for plants with medium term PPAs. Plants supplying to short-term competitive markets procure either from coal e-auctions or global markets.

Modification to the policy to enable allocation of coal supplies to an agency for aggregation and auction along with PPAs without requisition by states has also been agreed upon. In the current form, the policy provides that state governments have to indicate coal allocation to distribution companies or the aggregator.

The government official said the power ministry will also make suitable changes in its model bid documents to provide for auctioned coal linkages under Shakti. Currently, the PPA bid rules are based on old coal distribution policy.

A proposal to allow state power generating companies like NTPC share their fuel supply contracts with private companies has also been approved. The Sinha panel had suggested a scheme enabling NTPC to aggregate power from stressed plants through a bidding process and offer the same to discoms till its own plants are commissioned.

The coal ministry has also agreed to earmark 50% of e-auction coal for the power sector. Sinha’s high level empowered committee had recommended reserving 60% spot coal for power plants citing reduction in its quantity in recent months. The committee said due to lesser coal in special forward eauction for power sector, the premium for bidding has gone up substantially causing increased financial stress to generators.

Among other measures, the coal ministry has also agreed to extend Coal India contracts for short-term trade on exchanges for up to two years in case of cancellation of long-term power agreements with defaulting distribution companies.

The panel report dealt with issues related to 34 stressed projects with a combined capacity of 40,130-mw. This includes commissioned projects of 24,405-mw and under construction capacity of 15,725-mw stressed due lack of fuel, demand, equity, timely payment by discoms and other regulatory affairs. Coal related problems have been listed on top of the reasons for the stress in the sector.

Source: THE ECONOMIC TIMES