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No lessons learnt PDF Print E-mail
Monday, 30 April 2012 00:00
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Despite CAG, GoI doesn’t change view on captive coal
After the CAG came out with its ‘coalgate’ report where it talked of a Rs 10.7 lakh crore loss from allotting captive mines without auctioning, the government appeared to be trying to make amends. A total of 100 show-cause notices were issued to firms that had got captive coal blocks but had not developed them and 24 of them were ‘de-allocated’, others are in the process. A notice was sent out by the coal ministry to firms that had got the captive blocks saying that, since the purpose behind the allocation was to make power available at reasonable rates, all firms would have to ensure that, henceforth, all the electricity they sold was based on competitive bidding. In other words, since competitive bidding for power projects would lower the price of electricity, it didn’t really matter if the coal block used for producing this power hadn’t been auctioned.
Given this background, it’s not surprising that, over the weekend,  the E-GoM looking into the permission give to Reliance Power to divert part of the coal from its Sasan Ultra Mega Power Plant to its Chitrangi power plant has ratified its original decision — this diversion had figured in the draft CAG report. Power from Chitrangi is being sold on the basis of competitive bids, and so is in keeping with the coal ministry’s post-CAG circular on captive coal blocks. 
The problem with the post-CAG circular as well as the E-GoM decision is neither address the real issue of the advantage captive coal blocks give. Assume the capacity charge, or tariffs based on the capital costs of a power plant, is Rs 1 per unit. The final power tariff will then depend upon the cost of coal. While this cost can be 50-60 paise per unit of power in the case of a power plant with a captive coal block, it can be as high at Rs 1.5-2 if coal is bought in the open market. So, if firms are to bid for power in a competitive bid, the firm with a captive coal block can bid Rs 2.49 per unit of power, win the bid and still make a windfall gain of 89 paise per unit of power sold. If the government really wants to fix things, bidding for power projects is not the solution. Apart from scrapping the coal block allocations, the only other way is to move back to the old two-part tariff method where firms bid on their capacity charges and the fuel costs are based on actuals — this way, the 89 paise profit goes to consumers of power.
 
 

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