If the Government has its way, then the price of imported thermal coal may soon have to be borne by State distribution companies or ‘discoms’ as the Coal and Power Ministries seem to have agreed to a mechanism wherein the higher price of imported coal needed by power plants commissioned after 2009 would be “passed through” to concerned states where they are located, which in turn would reflect in monthly power bills of middle class households.
According to official sources, the “pass through” mechanism was discussed threadbare between both the ministries recently and a consensus is said to have been arrived at going ahead with it, especially with the failure of the price pooling mechanism on which no consensus could be reached within the Government.
The “pass through” mechanism would however be applicable for power plants which were commissioned after 2009 and another condition for implementing it would be that the power purchase agreements (PPAs) between plants and the supplier (that is Coal India ltd) need to be compulsorily in place.
Sources privy to the development told The Pioneer that efforts would be made to get the Union Cabinet’s approval for the proposal as soon as possible considering the urgent requirement of thermal coal in several power plants across the country.
They pointed out that the “pass through” mechanism though would put a lot of pressure on state discoms, as they would have to bear the higher cost of imported coal to be used by power plants falling under their jurisdiction.
Discoms on their part in order to try and balance out their expenses, would further pass on the higher cost of power generation to crores of households. In other words, all this would translate into dearer electricity bills all across the country.
Under the price pooling mechanism, buyers were to pay a price which was to be calculated by taking the average of domestic as well as imported coal prices. It was devised to cushion discoms and the common man from the impact of costly power generated from dearer imported coal.
However, owing to differences between both the ministries, the Cabinet Committee on Economic Affairs (CCEA) which had especially met on April 22 to clear it, decided to junk it. Though initially it was indicated that a ministerial panel would be set up to resolve the impasse on price pooling, it was subsequently decided to come up with a completely fresh alternative altogether.
A major point of objection was that plants which were situated nearer to pitheads (or coal mines) were not ready to bear the higher transportation cost of coal for plants which are situated away from the pitheads.
Consequently, realising the urgency of the situation - where several power stations are left with just few days of thermal coal - both the ministries with the intervention of the Planning Commission, decided to agree upon the “pass through” mechanism where if the cost of imported coal is higher, then it would be passed on to state discoms.
Power plants which came up prior to 2009, however, would continue to purchase coal on market price determined by Coal India ltd, or they would also have an option of directly importing coal on their own. However as importing coal costs a lot, this was precisely the reason why the price pooling mechanism proposal came into being.
Currently power plants either import coal on their own or take imported dry fuel from Coal India ltd (CIl) on cost plus basis (which means that the price which they pay to CIl also includes the cost incurred by the Maharatna company on extracting and washing it). In addition to this, the prices paid by various power plants across the country to CIl vary depending on their geographical locations.
This leads to escalation in the cost of overall power bills across the country, now, sources said, the “pass through” method would enhance it further, and all this would be at the cost of the common man.