Coal supplies to power plants to depend on PPAs


NEW DELHI: Power companies that win coal contracts with the Coal India Ltd (CIL) in the forthcoming auctions will have to ensure that they sign long and medium-term contracts for power supply with discoms within two years.

Coal supplies to the power plants will start only after they sign the power contracts.

The Cabinet Committee on Economic Affairs (CCEA) is likely to consider the new coal contracts policy for power plants in its next meeting. The clause was required to ensure misuse of coal, said a senior government official.

However, private power companies call the clause unfair as discoms have not been floating power requirement tenders regularly. They say the proposed auctions will put winning companies at a disadvantage when they compete for bagging power supply tenders floated by state distribution companies.

“Signing power purchase agreements (PPAs) is not in the control of the power companies.

There have not been many long-term contracts in the last seven years and looking at the low demand, subdued price of power in the market and falling prices of renewables, the probability of signing PPAs is very low.

“We already have an example of mine auctions wherein those who took mines without PPAs have not been able to secure PPAs and operationalize their mines till date. The coal auction policy also puts companies that take part in it at a disadvantage visa-vis those getting coal from CIL at notified price, thus distorting the competitive landscape,” said Association of Power Producers director general Ashok Khurana.

As per the proposed policy, the government will auction coal for companies that have the letters of assurance (Lo-As) for coal signed by staterun Coal India with power plant developers. The policy also proposes that all future coal tie-ups by CIL will be allotted to state distribution companies that in turn will call tariff-based competitive bids from companies on the lines of ultra-mega power projects.

The policy proposes to auction coal to commissioned and to-be-commissioned power plants with a rider that they will sign the PPAs within two years. Earlier the government proposed to auction coal separately to power plants with PPAs and power plants without PPAs.

In July last year, the Cabinet Committee on Economic Affairs had deferred decision on the policy for award of CIL contracts to power firms. The government has already finalised a policy for auction of Coal India contracts to unregulated sectors such as steel and cement. The private steel and cement firms will have to indicate their coal requirement and their end-use projects to the coal ministry before bidding for supply from Coal India Ltd.