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Saturday, 12 May 2012 00:00
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Instead of auctions, a curious half-way house
The government’s policies of allocating coal blocks, as well as coal to power plants, continues to bewilder. After Coal India, thanks to its independent directors, made it clear it wasn’t going to be able to supply the 55 million or so tonnes of extra coal for which the PMO wanted it to sign legally enforceable fuel supply agreements (FSAs) with new power plants, CIL diluted the penalty clauses in the FSAs and signed 12 of them. Since it now had to supply more coal to these plants—even though the penalties for non-supply were next to negligible!—it stopped supplying coal to the 28 new plants who had not signed FSAs with it. While the coal ministry has stepped in to say CIL has to supply coal to even these 28 power plants, this still doesn’t address the basic question of where the extra coal is to come from—indeed, were these plants to operate at full capacity, the shortage increases by another 20 million tonnes or so.
How this shortage is to be bridged is even more curious. Since the MMDR Act that was amended in 2010 allows coal mines to be allocated to power plants on the basis of a competitive bid, the government can do this even today—under the new MMDR Act which is still in Parliament, all minerals can be auctioned and to merchant miners as well. Instead of such auctions, however, the government plans to allocate captive mines to each state (how this will be allocated promises to be a huge mess). Once the states have the mines, in the same manner the Centre did with the ultra mega power plants (UMPP), the states will invite bids for power supplies. This is better than the current system where, since captive mines are allocated to power producers without auctions, the upside goes to the power producer. But since there is no clarity on what happens to the extra coal in the captive mines, as has happened in the Sasan UMPP, this will lead to more problems. Why not just do simple auctions under the current MMDR or wait for the new one when even merchant miners who are considered more efficient can also bid?

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