Will cheap coal yield cheap power?

To pass on benefits of captive coal to consumers, Power ministry advises coal ministry to curb profiteering.

All private companies producing power using coal from government allotted captive blocks will have to pass on the cost benefits to consumers in the form of low tariff. In case of violation, the allocation of the blocks will be cancelled.

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This was the advice that the power ministry gave to the coal ministry on March 29, following a report by the Comptroller and the Auditor General (CAG) which alleged huge irregularities by the coal ministry in the allocation of captive coal blocks.

The draft CAG report had named several top-notch companies as beneficiaries of cheap coal blocks, including Tata Steel, Essar Power, Monnet Ispat and Jindal Steel.

“Private producers using cheap coal are selling power in the open market at a cost between R5 to Rs 8 per unit,” said a senior power ministry official. “But the average cost of power procured by the state distribution companies (DISCOMs) is Rs 2.50 to R3 per unit.”

Under the tariff policy, the DISCOMs are required to purchase power through competitive bidding.

“While allocating coal blocks to IPPs (private power producers), the government had expected that the benefits of low cost of coal would be passed on to consumers in the form of low tariff,” said the power ministry’s March 29 letter to the coal ministry. But though these producers are expected to participate in the bids, many are “either not participating or are quoting higher tariff,” the letter read.

It went on to add that the coal ministry should “advise all coal block allottees to participate in the bids” as per power ministry guidelines or face cancellation of allocation.

This, the power ministry said, may be made a condition in the allocation letter to IPPs even for blocks already allotted.

A company which is a beneficiary of a captive coal block told HT, "We are yet to hear of these new directives from the coal or the power ministry." A senior NTPC official said, "We are selling power through bidding and at the cheapest rates”.