India assures domestic coal supply to plants based on imported feedstock

KOLKATA (miningweekly.com) – India’s Coal Ministry has laid down rules to ensure coal supply to thermal power plants that were constructed based on imported coal, as part of a strategy to achieve ‘zero dependency’ on coal imports over the next three years.

Rules and guidelines for supplying the thermal power generation sector require Coal India Limited (CIL) to commit assured supplies to all independent power producers (IPPs), which have constructed plants based on imported feedstock, a Coal Ministry official said.

The move was in line with the Indian government’s target that all government-owned and -operated power companies would achieve ‘nil imports’ of coal by March 2018, he added.

In the case of IPPs, the Coal Ministry stated that all the thermal power plants, which had power purchase agreements (PPAs) based on pricing and economics of imported coal, would be offered coal supply linkages through the auction route.

A significant benefit offered to IPPs through replacement of imported coal with domestic supplies was that while power companies would have to mandatorily pass on any cost benefit accruing from lower costs of domestic fuel, the power producers at the same time would have the freedom to revise power tariffs upwards in the case of any rise in the price of domestic coal, the official said.

This would offer leeway to IPPs based on imported coal that had been hit by a recent Supreme Court order. In a verdict last month, the court overturned a decision of the Appellate Tribunal for Electricity (APTEL) permitting power companies like Adani Power and Tata Power to charge higher tariffs than that stipulated in their respective PPAs.

Tata Power and Adani Power had sought  higher tariffs from APTEL in view of a rise in the cost of Indonesian coal and the tribunal had ruled in favour of the companies saying that a rise in the cost of imported coal was force majeure. The Supreme Court subsequently overruled the verdict of the tribunal, leaving these power companies without feedstock for their plants, or the option to import coal and offset higher costs by hiking electricity tariffs.

Ministry officials, however, pointed out that while CIL supplies would be a bailout for power producers stranded without coal, the government had a long-term goal of stopping all imports, which could potentially save the country $6.2-billion a year.

According to the latest data released by the Central Electricity Authority, Indian power producers imported 4.84-million tons of coal during April 2017, down 15% over the corresponding month of the previous year. Total coal imports by power companies during 2016/17 have been estimated at 65-million tons, down 19% over the previous financial year.