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Power cos complain about increase in reserve prices for spot coal by CIL

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Source: Business Standard, April 26, 2019

Privately-owned thermal power units have complained about coal price increase in the spot forward e-auction (SFeA) by state-owned Coal India and its subsidiary companies. The thermal companies have alleged that coal firms have increased reserve price in the range of 10-32 per cent.



In 2016, SFeA was introduced for those power units that do not have a long-term fuel supply agreement with Coal India. Coal India declares reserve price for every round of monthly auction, which is 10 per cent above the notified price of coal in India. Power units participate in a competitive auction process and offer premium of 30-40 per cent over the notified prices to bag the coal supply.





In a letter written to the Ministry of Coal, Association of Power Producers (APP) said various Coal India subsidiaries have now suddenly and unilaterally increased the reserve prices for SFeA for power. It said this would eventually lead to increase in power rates from these units.



“With this increase in reserve prices for the upcoming SFeAs, the final premium to be paid for successful bidders in these auctions would be well over 50 per cent of the notified prices. This increase would directly reflect in the cost of power produced and would be disastrous for the power projects considering the current stress scenario being faced,” the letter read.



During April 2018-March 2019 period, 27.14 million tonne of coal was offered under SFeA. This is half the amount offered during the same period last fiscal at 47.07 million tonne. In March 2019, 1.12 million tonne coal was offered, which witnessed a 20 per cent increase over the notified price. During the April’18-March’19 period, there was a 74 per cent increase over notified price, according to the monthly status report on the website of coal ministry.



In July 2018, power units had complained about falling coal amount in SFeA and increasing prices. South Eastern Coalfield Ltd and Mahanadi Coalfields Ltd are the two main SFeA suppliers. Power generators had alleged that the supply from these two mines dwindled. Power units are now complaining that Mahanadi, Northern & Western Coalfields Ltd. are increasing reserve price arbitrarily.



“Coal-based power plants are already struggling with low operating levels. The projects which are dependent upon the SFeA for their coal needs would get pushed down the merit-order dispatch, thereby reducing their chances of getting scheduled for generation. They will lose out to the power plants which get coal at much cheaper notified prices,” stated the letter.



The APP also said that power units are facing huge under-recoveries of cost, owing to delayed payment from state-owned power distribution companies. The total dues stand at Rs 40,000 crore as of January 2019. Further increase in power tariff due to this steep hike in reserve price for SFeA would make recovery of payments from discoms even more difficult, it added.

News Source: Business Standard

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