BENEFIT OF LOW INPUT COSTS TO REACH CONSUMERS – Cos Supplying Cheaper Power May Get Priority in CIL Coal Allotment

CIL’s coal to be offered via a reverse auction where cos offering lowest price for power have the highest chance
Supply cheap power and the government will allot coal. This seems to be the philosophy at the coal ministry. The ministry is proposing to replace the practice of offering coal to power companies through nominations with a reverse auction system, in which the company offering the lowest price for the power produced by it has the highest chance of getting coal from staterun miner Coal India.“The coal ministry wants to make sure that Coal India’s coal, which is at large discounts to international prices, be supplied to power companies that can pass on the benefit of low input costs to consumers. The idea is to eventually replace all existing and new coal supply contracts through a power tariff-based e-auction model under which the lowest cost power producer will get supplies from Coal India,“ said a senior coal ministry official.

To begin with, the ministry has decided to test the model for new power plants that have not yet received any coal supply assurance from the government, he said. Plants that were set up before 2009, and another 86,000 megawatts that have re ceived coal supply assurances from the coal ministry, will not be touched for now.

Plants with some 10,000 mw of capacity that have not received any coal supply assurances so far may be invited to bid, provided Coal India is in a position to supply additional coal to them.

New plants will be added through tariff-based auctions as and when additional coal is available.

The draft model that has been published for comments seeks to hold auctions at least once every 20 years with a provision for rise in input costs for coal production. The model has yet to take the final shape, but the draft report indicates that power distribution companies would hold reverse e-auctions where generation companies would have to bid. The distribution companies would have to sign agreements with the generators for obligatory purchase of the power that would be produced by using coal from Coal India. If a discom backs out on its commitment of buying the promised quantity of power, the generation company would be free to supply this power to other distribution companies and the discom would be penalised for not adhering to its commitments. The coal ministry official, however, said the ministry is in no hurry to introduce the model for all power companies.

Source: Economic Times; 29 June 2015
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