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Govt likely to pool coal supplies, pass higher import costs on to tariff

03 May 2013 Evaluate

After turning down the proposal of coal price pooling of domestic and imported coal, which would have made the fuel reasonably priced to new power plants, the government is now planning to pool coal supplies and pass higher import costs on to tariff. As per the Planning Commission Deputy Chairman Montek Singh Ahluwalia, the imported coal is more expensive than domestic coal, so the higher cost of imported coal will passed on in the tariff.

By adding further, Ahluwalia said that it would be some kind of average price as the available domestic coal, which is priced lower, will be distributed among different people and the balance (shortfall) will have to be made up through imports.  Last month, the Cabinet Committee on Economic Affairs (CCEA) had turned down the proposal of coal pricing pooling owing to sharp opposition to the scheme. The proposal was being opposed for various reasons by older power plants and domestic coal producers as the proposal will remove the advantage that old power projects enjoyed as compared to newer ones.

As per the CCEA meeting, the power projects commissioned before 2009 will continue to get coal at pre-fixed (below market) rates. While, the new projects, commissioned after 2009 largely have a cost-plus mechanism for calculation of electricity tariff and so any higher imported cost of coal will be passed through to the consumers. This may lead to increase in electricity tariffs if the generation companies pass the rise in cost to the consumers. 

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