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Power Firms To Pass On Coal Costs To Customers

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Electricity tariff across the country will increase by a minimum 15 to 17 paise per unit after the government allowed power producers to pass on higher cost of imported coal to consumers. Finance Minister P Chidambaram said the Cabinet Committee on Economic Affairs has approved the pass through proposal, which would result increase in power tariff.

"There will be small increase in power tariff. It will be very marginal increase on unit cost of power depending upon the cost of import of coal," Chidambaram said briefing the media. "They (IPPs) can import coal themselves if they wish, otherwise Coal India will import and this additional price which we pay for imported coal, obviously, has to be pass through in the power tariff," he added.

Chidambaram said: "It is better to have power and pay a few paise more or not have power at all. It is better to have our power plants working and producing power or keep them shut down after investing thousands of crores. For every MW today, I think the capital cost is between Rs 5-6 crore."

A Coal Ministry official said the move would result in higher power tariff to consumers.

"Though the quantum of the coal to imported has not been worked out but as per estimates if Coal India imports 15 per cent of coal, it would result in increase in electricity tariff by 15 paise to 17 paise per unit," the official said.

The new power prices have to be approved by individual states, which can decide to subsidise them and ease the costs for millions of poor Indians. "Ultimately the consumers have got to pay for the cost of generation, so there is no question of the developer taking a hit on the cost of imported coal. There was absolutely no sense in that," said GVK Power's George.

Shares in GVK and other power companies like Tata Power and Adani Power rose after the decision. India's electricity generation is dominated by state-run NTPC although an increasing number of private players are setting up units, often near the coast to facilitate imports. The country's total installed capacity is about 212,000 MW as of January this year, according to the state electricity authority.

Chidambaram further said the government has initiated measures to augment production and "by first week of July certain other decisions will be taken to open up more coal mines and to produce more coal". In the meanwhile, coal imports were necessary, he added.

"In the interim period, there is no option but to import some coal. Imported coal is costlier than domestic coal. We are guaranteeing 65 per cent this year to 75 per cent by the end of 12th Plan (by Coal India) for each of these 78,000 MW capacity," he said.
Chidambaram said significant power capacities stand stranded today in India due to lack of coal and gas. Elaborating on power tariff increase, he said: "We can't today estimate what will be the increase in cost of power and certainly it will not be uniform. It will depend upon power plant to power plant and where it is located."

He said while it was difficult to arrive at the quantum of increase at present, it would be "very marginal increase in the unit cost of power" if "we are able to guarantee them between 65 per cent and 75 per cent in the terminal coal of the domestic coal and if they import some coal to top it up".

A Power Ministry official said it would be very difficult at this point in time to ascertain the increase in power tariff as it would be done on a case by case basis. Coal Minister Sriprakash Jaiswal, however, said it would not impact consumers. The decision would also not affect signing of fuel supply agreements (FSAs) by CIL with power firms, he added.

The pass through mechanism will be applicable for nearly 78,000 MW of thermal stations commissioned after 2009. Under the proposed pass-through mechanism, the entire additional cost of imports would be passed on to the consumers as against the averaging of prices of imported and domestic coal under the earlier planned price-pooling mechanism.

The government had buried a proposal to pool prices of imported and domestic coal to make the fuel affordable to new power plants, owing to sharp opposition to the scheme. The government is mulling import of the fuel as Coal India Ltd (CIL) will supply 65 per cent of the requirement from domestic sources and another 15 per cent can be provided from overseas market.

Coal accounts for over half of the country's energy demand and 80 per cent of production comes from Coal India Ltd, which is 90 per cent owned by the federal government. Producers can either import directly or through state-run firms like Coal India and MMTC Ltd.

No To Hiking Gas Prices
However, a proposal to raise gas prices for the first time in three years has been deferred, information and broadcasting minister Manish Tiwari told reporters after a cabinet meeting.

A gas price rise to near world levels would have fuelled investment in the sector and made liquefied natural gas (LNG) imports from major producers like Qatar more attractive.

India is the world's third-largest producer of coal and more than half the country's power comes from burning the fuel, but domestic output falls short of demand, triggering frequent and lengthy power cuts in Asia's third-largest economy.

It also means power producers have to turn to expensive coal imports and until now, they have not been able to pass these costs fully on to customers. "That's a very, very positive development," Isaac George, the chief financial officer at GVK Power, said of the government decision.The move could help bring as much as 78,000 MW of generation capacity on stream, a power ministry source said.

India's economy grew at its weakest pace in a decade in the year to March 31, 2013 and the government is trying to tackle a raft of reforms, some leading to unpopular price rises, ahead of state elections this year and national elections in 2014.

Deferring a gas price rise to near world levels will see the government avoid an expected voter backlash.