Power utilities have told the government that former chief economic adviser and current RBI governor Raghuram Rajan’s suggestion on incentivising power plants set up before 2009 to import more coal to lessen the dependence on domestic output would be an expensive exercise and further deteriorate the financial health of distribution companies.
Rajan had suggested on May 22 that if power plants which had signed fuel supply agreements (FSAs) before 2009 get 90 per cent of their annual input from Coal India, could be incentivised to blend as much imported coal, it would free up domestic coal which could be allocated to other thermal power producers.
In effect, Rajan had pitched for pooling the prices of domestic and imported coal wherein imported fuel is supplied to them at a price equivalent to Coal India’s domestic prices. The differential between the actual price of the imported coal by Coal India and the price at which this is supplied is to be recovered by across the board increase in price of local coal to all power plants, Rajan had argued.
But various electricity producing utilities have told the power ministry that Rajan’s suggestion is untenable as they would have to pay higher prices for domestic coal apart from shelling out more money for imports.
“The producers have conveyed that there is lack of faith in Coal india in supplying 90 per cent of the annual contracted quantity. Besides the states have a feeling that the entire exercise could be at the expense of state-run power utilities and the main beneficiaries would be the merchant power companies,” the power ministry said in a note on July 29.
The average coal consumption by power companies has been 328 million tonne (MT) during the past three years against which Coal India committed only 306 MT. However, the supply has been further lowered to 275 MT. This reveals that there is a big gap between the requirement of domestic coal and the quantity which would be made available to the pre-2009 plants.