Pratim Ranjan Bose
Over the last decade, India’s coal-based power generation capacity
increased by nearly 2.5 times to 198 gigawatt (GW), courtesy an investment rush
by the private sector, that now controls 47 per cent of the total coal-power
capacity. The share was less than nine per cent in 2009.
Higher stakes should ensure more favourable terms for the private sector.
But the reverse happened.
According to Association of Power Producers (APP), Independent power
producers (IPPs) are facing the double whammy of competitive bidding both for
fuel purchase and long-term electricity sales to distribution utilities
(DISCOM).
In contrast, the State sector, led by NTPC, gets fuel at notified price
of Coal India (CIL) and sell electricity on “cost-plus” basis to DISCOMs.
In a petition before the Delhi High Court, on February 4, APP pointed out
that such discrimination is not merely against the original policy promises;
but is also against the November 2018 recommendations of High-Level Empowered
Committee, headed by the cabinet secretary.
The petition was filed challenging
the constitutional validity of recently held linkage auction under the Scheme
for harnessing and Allocating Koyla (coal) transparently in India (SHAKTI) for
utilities that didn’t have PPA. Failure to secure PPA within a stipulated time,
will cost IPP the bank guarantee.
The auction witnessed lukewarm response. Of roughly 12 million tonne fuel
offered by Coal India Ltd (CIL), approximately half was unsold. The rest
fetched an average premium of 8.5 per cent. But, the questions raised by APP remain valid.
Mess created by UPA
SHAKTI auction is not new and is part of the Modi government’s effort to
rescue power plants which were stranded without PPAs or fuel supply agreement
(FSA).
The mess was created by the UPA government that went hyper-active in
attracting private investment in coal power during Between 2005 and 2007, the
UPA went. The National Electricity Policy came in 2005. In 2006, Tariff Policy
mandated that beginning 2011 all PPAs must be entered through tariff bidding.
In 2007, the National Coal Distribution Policy (NCDP) promised that as a
monopoly CIL would meet the entire fuel requirement of power sector, on
priority, at notified price. CIL was even mandated to import coal, if
necessary, and blend with the domestic production.
The policy was correct in principle as it visualized level playing field
in accessing fuel and competition on electricity tariff. Private investments showered
based on Letter of Allotment, a preliminary promise to offer fuel. But, CIL was
never ready to meet this huge expectation.
The government was aware of the mess by 2008. But instead of alerting
investors and banks, they stopped holding meetings for granting LoAs. And, by
2013, they tried a face saver by bringing Presidential decree on CIL to give
coal.
CIL drafted the FSA in a manner so that that the company can get away by
offering barely half of the total requirement. This created different classes
within gencos depending on fuel availability and the resulting impact on cost
of generation.
But that’s just half of the problem. The mad rush for setting up power
stations coincided with an era of scams. Some power plants came up without any
assurance for coal but armed with PPAs at questionable rates.
Private sector suffers
Between 2009 and 2014, when Narendra Modi government came to power, India
added 66GW (gigawatt) coal-power. Nearly half of the added capacity was
stranded for want of fuel or PPA.
With another 50GW capacity under implementation, supply was far
outstripping demand, DISCOMs saw opportunity. Instead of entering long term
PPAs, they focused attention on extracting better value through short term
purchases.
The trend remaining same since. Over the last five years, India added a
little over 50GW coal-power capacity. But only 4.5GW electricity was sold
through long term PPAs entered through tariff bidding. Rest are living on short
term sales.
Capacity utilisation (PLF) declined from 84 per cent in 2009-10 to 55 per
cent. Ideally generators should expect higher tariff for operating at lower
PLF. But over supply of coal-power and increasing supply of renewables added to
their misery. Tariffs remain low across platforms.
The crisis didn’t touch State sector as they are passing on higher
operational costs on account of low utilization to the DISCOM.
Centre renegotiating PPAs?
APP alleges that while SHAKTI auctions are intended to ease pressure on
IPPs, it is exploitative in nature.
The exploitation is evident in auction of linkage for IPPs who have PPA
but no FSA. Here, the bidders are asked to offer discounts on tariff to get
fuel. Two such auctions are already held with discounts ranging upto seven paise
per kilowatt-hour (kwh) for the entire 25-year span of the plant.
In other words, the Centre forced renegotiation of legally valid contracts
(PPA). In a bad precedence, some IPPs even agreed to this. APP didn’t raise the
issue either in their petition.
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Twitter: @pratimbose
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