NEW DELHI: Private power companies, which have long had the luxury of selling cheap power from captive coal blocks with windfall profits by striking exclusive deals with discoms, will soon have to change tack. The power ministry has decided to make it mandatory for these firms to take part in tariff-based competitive bidding for supply of power to distribution companies.
The move would benefit consumers in states like Chhattisgarh, Orissa, Jharkhand and Andhra Pradesh, while Jindal and Essar group firms, among others, will feel the heat. For instance, while the average return on equity for the power sector works out to 15-16%, Jindal Power has been earning a return of over 100% from its Tamnar power plant in Raipur district of Chhattisgarh by selling the entire power generated through the merchant route.
When contacted, Jindal Power MD RS Sharma declined to comment.
As per a power ministry communication to the coal ministry reviewed by FE, the captive coal licences of these firms will be cancelled if they don’t start participating in the bidding process for power supply.
“A large number of coal blocks have been allocated to private sector for both captive power projects and independent power projects. While allocating coal blocks, the Government of India expected that the benefits of the low cost of coal from the blocks are passed on to consumers in the form of low tariff. It has been noticed that many coal block (allottees) are either not participating in the bid or or quoting higher tariff almost similar to coal linkage based projects,” Union power secretary P Uma Shankar has said in a letter to his counterpart in the coal ministry.
The national tariff policy mandates all discoms to sign power purchase agreements with suppliers by following the tender route. Many companies with captive blocks have been smugly avoiding this route and selling power to discoms through bilateral contracts in violation of the policy. This has been at the cost of consumers who were deprived of the benefit of the lower costs of power generated from captive coal.
In a recent report, FE had highlighted the government’s failure to check misuse of the captive coal allocation policy by some power developers and also other users of coal like steel and cement companies.
The power ministry has now asked the coal ministry to insert a special provision in the allotment letter issued to developers of captive coal blocks including existing ones, stating that they would participate in competitive bidding for supply of power to discoms.
In case of non-compliance with the proposed norm by developers, allotment of their captive blocks would be liable for cancellation. The coal ministry is expected to notify revised guidelines for captive coal block allocation soon following the power ministry’s request, sources said.
Industry experts welcomed the move. “Coal is a scarce commodity. If it is available at low costs, that benefit should be shared with consumers. And it would be possible only when power is sold through tariff bidding route,” said VP Raja, chairman, Maharashtra Electricity Regulatory Commission.
“The government’s move to make participation in bidding for power supply would not have much impact on the overall tariff in the country,” said Tantra Narayan Thakur, chairman and managing director, PTC India, a leading power trader.