Now, coal swapping

Aug 12 2014, 23:26 IST
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SummaryPublic sector power producers could be allowed to exchange linkages

Encouraged by the outcome of swapping arrangements between off-takers of D-6 gas and Hazira-Bijapur-Jagdishpur (HBJ) pipeline-linked customers, the government has decided to implement a similar dispensation for exchanging coal linkages between public sector power plants.

This comes at a time when domestic fuel prices are moving towards import parity, triggering concerns about the affordability of electricity. There are indications that Cola India (CIL) may soon be allowed to charge international prices for its coal, based on the gross calorific value. Many private investors who have taken stakes in CIL, especially the UK-based hedge fund, The Children's Investment Fund, are putting pressure on the government to permit the state-owned coal producer to shift to import parity-based coal pricing.

The coal swapping plan, if implemented, would help central and state public sector generators like NTPC, Damodar Valley Corporation, Gujarat Urja Vikas Nigam Ltd to make substantial savings on coal transportation costs.

To understand how the proposed plan would work, we can take a possible scenario of coal swapping between NTPC's generating stations in Korba and Sipat in Chhattisgarh and those of Gujarat utility sourcing coal from the Gevra mine in Chhattisgarh.

Following a directive from the power ministry, NTPC is required to use blended coal (a mix of domestic and imported fuel) at its generating stations. The imported coal consignments are unloaded at Gujarat's Mundra port and then transported via rail to generating stations. At the same time, the Gujarat utility, which has coal linkage for its power plants from the Gevra mine in Chhattisgarh, has to transport coal all the way to its plants in Gujarat. If NTPC and the Gujarat utility exchange coal as per the mooted plan, both will save on coal transportation costs, which would in turn help them to bring down electricity tariff.

Sources said coal swapping will be allowed only between public sector generating stations, and private sector plants will not be part of the proposed arrangement. Whether or not there is a case for allowing coal swapping will be decided by the coal ministry depending on the merits of the case rather than as a general rule.

CIL will examine each proposal for coal swapping and feasibility of transporting coal. After that, the proposal will be deliberated by the standing coal linkage committee, which is headed by a senior coal ministry official and has representation from other concerned ministries.

Further, exchange of coal will happen only under long-term arrangements, which would entail

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