The shortage of domestic coal is finally beginning to affect development of new power projects in the country with the government proposing to stop acceptance of companies? applications for fresh coal linkages for a period of three years. It may also restrict provision of long-term coal linkage to only 60,000 mw of power projects in the 12th Five-Year Plan against the power ministry?s recommendation for 1,50,000 mw of projects.
The move, which aims to prevent Coal India Ltd (CIL) from defaulting on its coal commitment to projects, is expected to put brakes on fresh investments in the power sector as assurance on fuel is critical for getting finances for putting up power plants. It would also make the task of adding 1,00,000 mw of new capacity in the current Plan impossible.
?We have internally decided not to entertain new applications from power projects seeking coal linkages. The policy could be crystallized by the Prime Minister?s Office (PMO) that is meeting officials from power and coal ministries later this week,? sources in the coal ministry told FE.
The difficult decision by the coal ministry has been forced by a surge in applications from power sector companies for grant of coal linkages for their respective projects. At the end of August 2012, the coal ministry had close to 600 pending applications from power projects, totalling about 6,00,000 mw, for grant of long-term coal linkage. The estimated coal requirement for these projects is a staggering 2,700 million tonne per annum. In addition, there are 476 applications of captive power plants that need coal.
The country currently produces about 500 million tonne of coal and at the and of 12th Plan (2016-17), the country?s total coal production is expected to reach 780 million tonne. With the demand-supply mismatch in coal already reaching about 140 million tonne, meeting new demand would be completely impractical and impossible.
?Many of the applications are not serious about their projects and we should weed these out while looking at the option of meeting fuel needs of serious investors,? said a CIL official asking not to be named.
Under the new policy, no fresh applications would be invited for fuel linkage for a period of next two to three years. A review of the situation would be done subsequently, once the coal situation improves. For the current plan, only 60,000 mw of projects would be allowed to sign fuel supply agreements (FSAs) with coal companies and the list in this regard forwarded by power ministry would be pruned further to identify serious players. The power ministry has recommend projects worth 1,50,000 mw for grant of linkages in the current plan.
CIL has been directed to enter into FSAs with power projects being commissioned up to March 2015. It has signed 29 FSAs so far and has to sign about an equal number more to meet the commitment. To meet 80% of annual contracted quantity (ACQ) of coal for power projects, CIL has said that 15% of the quantity would need to be imported.
