India’s Coal Ministry to extend coal linkage offer to all IPPs

KOLKATA (miningweekly.com) – India’s Coal Ministry has started the process of offering coal linkages to all independent power producers (IPPs) operating plants based on imported coal.

Starting next month, the Ministry will auction coal linkages to imported coal-based IPPs that do not have power purchase agreements (PPAs) with power distribution companies in place yet.

Before now, the Ministry only planned to offer domestic coal linkages to imported coal-based IPPs that have concluded PPAs with power distribution companies.

Coal India Limited has already started the auction process for coal linkages to this category of IPPs, a Ministry official has said.

A Coal Ministry committee, similar to the one set up for IPPs with PPAs in place, will be set up to determine the volume of fossil fuel required by power companies which do not have PPAs.

Government officials said that extension of coal linkages to all categories of IPPs was in line with government’s objective of reducing coal imports.

Earlier this year, guidelines were issued to all government-owned and -operated power companies, including NTPC, to stop importing coal for their plants.

Indian coal imports during April 2016 to January 2017, were down 2.59%. The Coal Ministry has set a target of achieving ‘zero imports’ by 2018/19, saving an estimated $2.65-billion on the import bill.

However, apart from the macro aspects, the expansion of coal linkages was also aimed at bailing out IPPs, as several were caught in a “Catch-22” situation, industry insiders said.

They pointed out that, on one hand, many of the IPPs were not able to successfully negotiate credit finance for their projects with commercial banks as they did not have PPAs or buyers of their production.

At the same time, successfully clinching a PPA faces hurdles as distribution companies were either not willing to negotiate a PPA based on power generated from imported coal as this would necessitate higher electricity tariffs. Or, in view of falling demand for electricity and the low plant load factor (PLF) of operational plants, many distribution companies are in no hurry to sign fresh PPAs with new generating companies.

Sluggish industrial demand resulted in a slump in the average PLF of all thermal power plants in the country to 60% during 2016/17, down from a recent high of 78% during 2009/10.

Under the coal supply linkage on offer to power companies, coal producers would assure supplies to the extent of 75% of their yearly contracted volumes to an aggregate 68 000 MW generating capacity. Although not clear as is, the aggregate volume of coal on offer through auction of linkage might have to be revised upwards once IPPs without PPAs were also brought under the linkage scheme.