Power producers willing to cut prices despite rising coal cost

Ready to take cuts on margins for assured offtake

As power producers rue over the spiralling coal cost, electricity distributors or discoms appear to be enjoying the benefits of lower procurement cost with independent power producers queuing up to secure long-term contracts.

Reliance Infrastructure said its invitation for bids for a 1,000-MW long-term power purchase agreement for 25 years attracted quotes between Rs 3.26 and Rs 3.80 a unit.

Five power producing companies had offered supply, of which two with whom the company initially negotiated fell in the price band of Rs 3.26-3.42.

Further negotiations were called off following directions from the State power regulator, the Maharashtra Electricity Regulatory Commission.

The regulator wanted the company to seek re-bids to explore the possibility of still lower prices, according to a senior RInfra official. This is said to be 5-8 per cent lower the rates offered last year.

Takeoff versus margins

Only one power producer sought Rs 4 a unit as his plant was based on imported coal. IPPs were willing to compromise on margins to a great extent when it came to assured off-take year round. The rating of the utility also mattered and many were willing to go that extra mile if it was an AAA-rated procurer, given that State utilities do not have a healthy payment record, he said.

With coal prices soaring, many power producers, especially those with imported coal-based plants, are seeking to renegotiate their power purchase agreements with buyers.

In June, the Association of Power Producers, a forum of power producers representing 90 per cent of generating capacities being set in the private sector, wrote to the Ministry explaining their predicament due to the high coal cost due to the regulatory changes Indonesia has introduced.

The Association pointed out that since introduction of the competitive bidding process power projects worth over 43,000 MW were awarded of which 13,000 MW were based on imported coal. Here, developers had bid competitively, based on the agreements/ arrangements with fuel suppliers from Indonesia and other sources.

With Indonesia making policy changes that warranted exports to be benchmarked to international prices, irrespective of the arrangements entered into, the entire fuel supply scenario has changed. India is destination to near 65 per cent of coal mined in Indonesia.

On the domestic front, the developers are impacted as the contractual framework for power sales do not cover policy/ regulatory changes in countries they import coal from. Australia has also gone in for a carbon tax of five per cent.

LINKAGES

Further, even producers with assured linkages are getting little over 50 per cent of their requirement and are forced to source imports to make up the deficit.

Last week, the Union Power Secretary, Mr P. Uma Shankar, was reported to have said that it was for the producers to negotiate prices with buyers.

This, industry experts said, was extremely difficult and could lead to legal complications as any price revision would infringe upon the sanctity of the contract entered into. Further, those who had lost out in the bidding process would question the legality of the revision in the context of rejection of their bids.