Coal cost pass through to cut load shedding: Ex-power secy

Hailing the CCEA’s decision to allow power companies to import coal and transmit the high prices to the consumers, RV Shahi, former power secretary says the decision will lead to a cut in load shedding.
 
He says power companies’ not importing coal due to the absence of pass through mechanism, lead to consumers either paying as high as Rs 15 per unit of power for diesel generation or massive load sheddings.

Shahi furthermore adds that the issue was dragged for a long time. He says, “It was a simple issue, but it dragged on because there was a controversy whether Coal India will import for everybody and the prices will be pooled along with the domestic coal prices. They also have the option and most of the generators, particularly the larger generators will import coal directly because they could take timely decision in which case, through a regulatory oversight the cost will be allowed to be passed through.”

Below is the edited transcript of Shahi’s interview to CNBC-TV18. Q: There have been many failed attempts in ensuring coal supply to power plants. First Coal India was forced to sign Fuel Supply Agreements (FSA), then we attempted pooling price of domestic coal with imported coal. Now the Cabinet Committee on Economic Affairs (CCEA) has announced that power companies can import and it can be passed through? Will this attempt work?
A: India's power sector is primarily dependent upon coal. Though capacity is 55 percent of the total capacity, but generation wise 75 percent of power generation is from coal based power stations. In the last three years coal production was not picking up, except last year. Last year it picked up by about 6-7 percent, but 9-10, 10-11, 11-12 it was stagnating.
As a result, it required heavy imports of coal from outside. But then there was no formula that if generators import coal whether the extra cost will be mitigated. It is not something new in the country. Coal import has been there in the past. Public sector companies including National Thermal Power Corporation (NTPC) have been importing and it has been a usual practice to allow the pass-through of additional cost on the generation tariff to be recovered from the distribution company.
It was a simple issue, but it dragged on because there was a controversy whether Coal India will import for everybody and the prices will be pooled along with the domestic coal prices. That has taken a lot of time to sort out, but finally, what has been resolved that it is not compulsory for the generator to take coal including the imported coal only from Coal India. They also have the option and most of the generators, particularly the larger generators will import coal directly because they could take timely decision in which case, through a regulatory oversight the cost will be allowed to be passed through.
Indian power sector, Indian distribution companies, electricity boards are already used to this dispensation. This treatment is not something very new. What has happened is, and I must compliment and congratulate the Power Ministry, particularly the new Power Minister Scindia who has seen to it that this decision is taken, so today there is an option. Maybe smaller generators might still try to take coal from the Coal India, but the larger ones will import themselves. Q: The Power Purchase Agreements (PPA) clearly say that only Coal India's price hikes will get a pass-through. If the power generators opt to go for imported coal prices; that imported coal price increase will not be allowed to be passed through to the consumers. Won't this attempt end up in litigation?
A: Right from the beginning, this should have happened and distribution companies would have been able to get power, load-sheddings could have been avoided. But since it was not so simple, the PPA was not straightforward and allowing this to happen, therefore this matter has gone as high as the CCEA presided over by Prime Minister himself.
Now, it is not that somebody will import and whatever price he says will be a pass-through, no. It will have to be dealt with. Individual cases will have to be dealt with by the concerned regulatory commission and it is the regulatory commission which will allow the pass-through, a practice which is already prevalent in the country.
Today also NTPC or other public sector companies who have been importing coal, it is not that whatever they say becomes the pass-through as a burden to the distribution company. The concerned regulatory commission will ensure that the pass-through is of a reasonable amount and the actual amount of additional cost.
Suppose somebody imports at a fictitiously very high rate and that will be a pass-through, no. They will index it. They will find out what is the prevalent price of coal for that quality of coal, that calorific value of coal and only after due examination the system and procedure would be put in place. Q: When the PPAs were being negotiated, the power generators in the escalation clause clearly wrote nil. Other bidders said that they want an escalation. These guys got the contract because they said that they will not escalate according to imported coal prices or whatever. The escalation option was written off by them. So don’t you think that discoms will again take them to the court? Even State Electricity Regulatory Commissions (SERC) may not oblige, they are not appointed by state governments and state governments may not be able to politically stomach a rise in power tariff. So wouldn't there be litigation?
A: This decision is because of the fact that Coal India which is a government company is now saying and what it is saying is reality that it would not be able to supply more than 65 percent of coal that it commits to supply, linkage.
If Coal India were to supply whatever they have provided in the coal linkage on the basis of which these PPAs were signed, there was no problem. Here is a case of a government owned company not being able to supply the earlier quoted amount for a variety reasons, saying that they would be able to supply only 65 percent.
In this same very decision what has been agreed is that only in the last year of the current Five Year Plan, that in 2016-17, they would be able to ramp up their production, that they will be able to supply and that too only 75 percent of the quantity. So, obviously the sector is faced with a problem.
It is because of the reasons beyond the control of everybody that enough coal is not coming. In that situation what else is the alternative? I do not think the regulatory commissions of different states will take a different view.
Today, since we are not importing coal because this pass-through mechanism has not been in place, the consumers in the end are suffering because they are paying something like Rs 15 per unit of power for diesel generation. So, if one does not allow this import, does not allow the pass-through, then load-shedding takes place and when the load-shedding takes place, one would resort to diesel-based generation. In diesel-based generation, one has to pay something like Rs 12-14-15 a unit.
Hence, it is a loose situation that has been taking place in the sector. This has to be explained. I think even the court will recognise this reality that massive load-sheddings is of no benefit to anybody.