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Power producers protest rise in coal auction prices

Source: Wikipedia, April 25, 2019

Electricity generators are worried that the ‘arbitrary increase’ in prices of coal allocated to the power sector through ‘e-auctions’ would raise electricity prices, and, in turn, deepen the crisis of stressed power projects, as distribution companies would not source electricity from these plants at higher costs.

Major stressed power plants which procure the fuel through e-auction and are likely to be adversely impacted by price rise are 1,200 MW Essar Mahan, 1,320 MW Jaypee Nigrie, 1,050 MW GMR Kamalanga and 1,200 MW DB Power Bardhara unit.

In a letter written to coal secretary Sumanta Chaudhuri, the Association of Power Producers (APP) complained that various subsidiaries of Coal India (CIL) have “suddenly and unilaterally” increased floor prices (reserve price) at which the auctions begin. “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, reviewed by FE, said.

Commissioned power projects which have power supply agreements with states, but do not have appropriate fuel arrangements, are eligible to apply for the special e-auctions. More than 27 MT of coal was offered exclusively to the sector in FY19 when the highest bidding power plants, suffering under inadequate fuel supply, paid 72% more than the ‘notified price’ of coal.

The APP pointed out that in February 2016, CIL had issued a circular stating that the reserve price for such auctions would be limited to l0% over the notified price of coal. Over the last week, Mahanadi Coalfields has raised the reserve price to 20% over CIL’s notified price. Northern Coalfields and Western Coalfields have increased the same by 30% and 32%, respectively.

Driven by shortage in supply in the wake of a sudden rise in electricity demand, power plants across the country imported 61.7 MT of coal in FY19, recording an annual rise of 9.3%. CIL had raised prices of non-coking coal in January, 2018, which is seen to have raised power tariffs by 2-4%. The price of coal with gross calorific value between 3,100 kcal/kg and 4,300 kcal/kg, which the power sector uses the most, had been increased by about 15-18%. Power producers requested the coal ministry to direct CIL to “maintain the reserve price at l0% so that stressed power plants can operate reliably and cost effectively”.

News Source: Financial express