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Friday, 29 March 2013 00:00
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Shobhana's edit



Price pooling helps everyone, even those opposing it


The older coal-producing states like West Bengal and Jharkhand, as well as those with older power plants, continue to protest the idea of price pooling that the Cabinet will decide on next week. Their argument is a simple one: if the government loads on part of the higher price of imported coal on to local coal supplied by Coal India, this will raise their tariffs. In some ways, they argue, this is akin to the freight equalisation scheme of the 1960s and 1970s that hit mineral-rich states like Bihar—if a power producer is to pay the same price for coal whether he is located inside Orissa or Jharkhand versus being in coastal Gujarat, most will prefer Gujarat. These states are therefore arguing that, even if there is no alternative to pooling coal prices, it is better to do it for plants that came up after 2009. The maths, however, makes it clear everyone benefits from coal price pooling, and across all plants.

Till 2009, India had roughly 65,000 MW of coal-based power and this is around 100,000 MW today. So, based on the difference in the price of local and imported coal, doing the pooling on all 100,000 MW will raise costs by 18-20 paise per unit of power—do it on just 35,000 MW and the hike will be 60 paise per unit. More important, if there is no price pooling and power plants don’t work, states still spend around R1-1.2 per unit of power by way of servicing the cost of those plants. If states now spend between 20 and 60 paise more on higher fuel costs, they can sell this power at around R2.5 per unit at the least. In other words, even the coal-rich states stand to benefit from coal price pooling. If the power generated from the extra (imported) coal is given free to the agriculture sector, of course, the logic fails.


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