Faltering power projects may face coal quota cut

Power projects faltering in generating committed amount of power may face cuts in coal allocation as the government is planning to institute a dynamic linkage policy.

The new policy would ensure that coal allocation is commensurate with electricity generated in a specified period. The move is aimed to discipline project developers and encourage them to put the fuel to most productive use.Coal is in short supply in the country and the government feels that the new system would also allow the fuel to be available to a large number of power projects as linkage cuts for one project could be diverted for use by other power units who could not be committed coal by the Centre
Once implemented, the changes could impact projects of companies such as Reliance Power, Adani, JSPL, NTPC, Essar, Tata Power.Power units based on cost plus tariff and bidding method are given coal linkage (upto 75% of their requirements) by the coal ministry under which an agreed quantity of coal is provided to these units by Coal India Limited (CIL) and its subsidiaries at notified prices. Under the new system, power projects commissioned on and after fiscal year 2009-10 will be given dynamic coal linkage, where coal allocation will be revised periodically based on electricity generated.

“We have asked Central Electricity Authority (CEA) to keep a watch on generation performance of power units so as to make requisite modifications in linkages commensurate with their performance.Rationing for distribution of coal among new units under given circumstance has become unavoidable ,” said an official in the power ministry asking not to be named.The dynamic linkage policy has been worked out due to acute shortage of coal being faced by all new and upcoming power projects. CIL has offered 347 million tonne (mt) coal for supply to the power sector during 2011-12. Since, 206 mt coal already stands committed for supply to generating units commissioned till March 31, 2009 and fuel supply agreements (FSAs) have been signed or committed by power utilities with legally enforceable commercial conditions, only 41 mt is available for distribution among generating units commissioned (of over 20,000 MW) after fiscal 2008-09. “It is a good move but dynamic linkage policy should be carefully calibrated so that transportation bottlenecks do not hamper diversion of coal,” said a power sector analyst.

Coal is already in short supply in the country forcing companies to hunt for overseas assets to meet domestic shortfalls. Even CIL is set to import coal to meet the committed amount of fuel for projects where it has already entered into FSAs.At present the demand-supply gas of coal in the country is around 60 mt and this gap is expected to increase to over 120 million tonne per annum next few years as per an assessment by the Planning Commission. Power ministry has also drastically cut capacity addition for annual plan 2011-12 to a mere 7,675 mw due to coal supply constraints.Power secretary P Uma Shankar in a recent meeting with member (energy) Planning Commission had stated that coal shortages would result in lower plant load factor (PLF) for plants commissioned in 2009-10 and render all projects commissioned in 2010-11 nonoperational.