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Govt sweetens captive coal block e-auction

The government has made two crucial clarifications on the e-auction process for captive coal blocks in order to make them more attractive to potential bidders.

According to the changes introduced by the coal ministry, existing or upcoming power plants that don’t have power purchase agreements (PPAs) with buyers of electricity will also be eligible to bid for the coal blocks. Also, the reserve price of Rs 100/tonne payable by the successful bidder will be included in the energy charge, which means that fuel cost that will be passed through to consumers will include reserve price along with the actual rate of coal at which the bid has been won.

This could translate into bidders being willing to bid more aggressively and still manage to run a profitable business, analysts said.

The minutes of the meeting released by the ministry said “power projects which do not have PPAs today but would be entering into PPAs (Case 1 bidding) in future also need to be covered explicitly.”

“Generators without PPAs have been in a dilemma for some time. This was because states are unlikely to enter into PPAs with generators that do not have coal linkage and Coal India would refuse to give linkage to generators without PPAs. We have tried to correct the situation by allowing such generators to enter into the auction fray,” a coal ministry official said.

Apart from the scarcity of coal that has led to more than 15,000 MW of generation capacity not being able to sign coal linkage pact with Coal India, the situation has been exacerbated by the loss making state-owned discoms not shying away from signing pacts with power producers for long-term supply of power because of financial health.

While there will not be any deadline in place for such capacity to enter into PPAs, they will not be allowed to sell more than 15% of its capacity in the open market. These bidders will also have to pay an additional reserve price for the quantum of coal used for power sold in the merchant market, over and above the reserve price for other generators with long-term PPAs which is Rs 100/tonne. “The clarification significantly invigorates the auction as there’s considerable generation capacity without fully covered fuel supply, and generators can create an additional profit margin between the escalation offered in Case 1 bidding documents and the actual cost inflation,” said Kameswara Rao, leader, energy, utilities and mining, PwC.

As regards the reserve price (which is to be paid to the state government) being a pass-through, Rao said: “For merchant power, the reserve price is higher, the new proposal will make sure that there are no extraordinary gains from open market sales. This is a safety feature as bidders would factor in the extra reserve price in their quoted prices.”

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