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OCT 03 2013

Still no clarity on PPA route for captive coal power

  • Economic Times, ET Bureau / Hyderabad
  • Created: Thu 03rd OCT 2013

Despite the Comptroller and Auditor General (CAG) expressing its reservations a year ago on power producers with captive coal blocks entering the merchant power market, the government is dragging its feet on the issue.

Of course, a view has been taken with the knowledge of the law ministry that these producers can be allowed to sell power through the tariff-based bidding route and under long-term power purchase agreements (PPAs), the required amendments to state-level mining leases have yet to be done.

The new stipulation is that after the change in mining contract, the developers will get another 18 months to sign the PPAs to sell power.

More than three dozen private companies, including Jindal Power, Tata Power, GVK Power, Adani Power, JSW Steels, Hindalco Industries, Bhushan Power and Steels and Balco, have been allocated captive coal blocks to meet fuel requirements of their power projects. While many of these end-use projects are yet to go on stream, Jindal Power, which invited CAG's ire for selling power from its 1,000-MW Tamnar plant in Chhattisgarh in the merchant power market, hasn't been restrained as yet.

The coal ministry, which was told by the power ministry in March 2012 to restrain power companies from selling captive coal-generated power in the merchant market, took a while to act. After the coal ministry finally referred the matter to the law ministry, the latter took about a year to give its opinion.

Although the law ministry's view that the mining contracts can be amended retrospectively to ensure that the power developers sign long-term PPPs came in May this year, the coal ministry told the states to take necessary follow-up action only at August-end.

But again, captive coal users have been given 18 months to switch to long-term PPAs after amendment of the mining contract. "The coal block allocatee whose end-use plant is already commissioned or likely to get commissioned in next 18 months and where coal production has commenced or likely to commence in near future, need to get into long-term PPAs with the discoms within 18 months," the ministry has written to states where these captive blocks are located.

The draft CAG report, which was leaked to media in March 2012, estimated that undue (presumptive) gains of R1.86 lakh crore accrued to private power companies from allocation of captive coal blocks made to them by the Centre between 2006 and 2009 without following auction.

Given that next general elections are due in May, much before the expiry of the switchover deadline set for power firms, the coal ministry does not seem to be very serious in correcting the policy anomaly that invited CAG's damning observations.

Just after the draft CAG report was leaked to the media, the power ministry had advised the coal ministry to issue directive to power companies using captive coal to desist from sale of electricity in the merchant and, instead, sign PPAs. However, the coal ministry sat on the advice, citing lack of clarity over legality of the proposed move and referred the matter to the law ministry for opinion.

The law ministry's opinion came in May. But instead of acting immediately, the coal ministry kept sitting on the matter for three months. Finally, it issued advisory to states on August 26, asking them to amend mining leases. However, a window of 18 months has been offered to errant power firms to adjust to the proposed policy change. That means there is no hurry for these companies to sign PPAs.

While more than three dozen companies have been allcoated coal blocks to produce electricity, Jindal Power's 1,000-MW Tamnar in Chhattisgarh is the only operational power plant so far. By selling electricity in the merchant market from the plant, Jindal has been earning over 40% of returns on equity compared to 15-16% allowed by the electricity regulator for normal plants.

Tags

JSW Steel Ltd. Adani Power Ltd Comptroller and Auditor General Indus JSW Steel Hindalco Power power market Tata Power

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