Power producers press for EGoM on coal contracts

Sunday, July 3, 2011, BS Reporter

New Delhi: Industry body wants expert panel to examine supply deals and modify policies to address coal shortage.

The Association of Power Producers (APP) has demanded setting up of an empowered group of ministers (EGoM) to revisit the current bidding contracts in view of the coal shortage.

Issues such as lack of domestic coal, environmental clearance for projects and rising cost of imported coal are beyond the control of developers, and are likely to turn away investors from putting their money in power projects, said the industry body. These issues, it argues, have erupted after projects were bid out on competitive bidding criteria in 2005.

APP represents private power firms such as Reliance Power, Tata Power, GMR, Essar and Adani.

“An EGoM or an expert group may be set up by the government to evolve the principles and mechanisms to revisit the contracts, duly holding the developers accountable for aspects in their control, but finding practical ways for treating aspects that are not,” APP Director General Ashok Khurana said in a recent letter to Planning Commission Deputy Chairman Montek Singh Ahluwalia.

The constrained domestic coal production has led the state-owned monopoly coal producer, Coal India Ltd (CIL), to modify the model Fuel Supply Agreement (FSA) to assure only 50 per cent of the annual contracted supply for power plants as against 90 per cent earlier. FSAs for plants commissioned after March 2009 have, therefore, not been signed, the letter said.

The power sector is likely to suffer from an overall coal shortage of 62 million tonnes (mt) by the end of the current Plan (March 2012), taking into account the 104 mt required for plants that have come on stream after 2009 and 305 mt required for the existing plants.

The supply deficit is likely to go up to 226 mt by end of the 12th Plan. “This is likely to impact the projects in terms of loss of capacity payments or increase in cost due to sourcing coal through imports or e-auction,” the letter states.

The letter also points out the risk of sourcing high-cost coal from overseas in view of the latest policy changes in Indonesia and Australia, the two countries India sources most of its coal. While the Indonesia government is planning to bring in a law mandating selling of coal at international benchmark prices, Australia recently introduced a draft law to levy taxes on import of coal and iron ore. (By Business Standard)