States free to give coal to efficient private power producers

27 February 2017

The power ministry on Tuesday framed rules giving state governments the freedom to get power generated by the most efficient private companies in the state using the coal allocated to states by miners under a new system that replaces the earlier rigid allocation of coal to individual state-owned plants.

The rules framed in line with the cabinet decision of 4 May last year rationalising coal allocation, to allow states to invite power tariff bids from independent power producers at which they are willing to sell power using the coal that the state is willing to assign to them.

The landed cost of power from the private generation company including transmission charges has to be less than the variable generation cost of power from the state power generation unit, which the private player is seeking to replace, according to the rules released by the power ministry. Power tariff has two components—a fixed cost of the power plant and the variable or the energy cost.

The private power producer has to assess transmission infrastructure availability before making the bid. The state will check with the ministry of railways before assigning coal to the winning bidder whether transportation of the fuel to the private player’s plant was feasible.

The easing of the coal allocation rules is part of the government’s efforts to reduce power generation cost by utilising the fuel at the most efficient plant and enable distribution companies to buy more power.

On 21 December, coal and power minister Piyush Goyal had said that he had cleared the plan to allow state-owned and private companies to swap their allocations of coal so that power plants can source the fuel from the closest available location and improve power generation efficiency. The minister had also said then that eventually he would like such swap of coal to be allowed across sectors of the industry such as power, steel or cement.

Source – Livemint