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Coal ministry to power cos: Supply Low-cost Electricity or Surrender Coal Blocks

Power generation firms that have been awarded coal mines will have to stop mining operations or surrender their blocks, if they don’t give consumers the benefit of low-cost electricity by competing for power supply contracts with state distribution companies.

The coal ministry has asked states to insert a new clause in mining leases, including old ones, to mandate that power companies that have been given coal blocks must abide by these conditions, government sources said.

The government has faced widespread criticism for awarding coal blocks to private firms, but in its defence, the coal ministry has argued in the past that giving captive mines to companies would speed up development of coal reserves and fuel economic growth. In June last year, the Centre said all power firms that own coal blocks should participate in bids invited by state distribution firms to make sure that the benefit of coal blocks goes to the common man.

“However, it has been noticed that many coal block allotees have not complied with the said conditions,” the coal ministry said in a note to chief secretaries of states where the mines are located.

Between 1993 and 2009, the coal ministry allotted coal blocks to 29 companies, including Essar Power, JSW Steel, GVK Power, Jindal Steel & Power, Tata Power, Hindalco Industries, Adani Power, GMR, Arcelor Mittal India, Lanco, Reliance Energy and others.

A coal ministry official said that ministries of power and law were consulted last year to examine if all coal block allotees for the power sector can be compelled to participate in the bids from distribution companies. “It has been found feasible and legally tenable to impose such a condition in the mining lease by the coal block allotees of the power sector, with the concerned coal bearing state government,” the official added.

The proposed new clauses in the mining lease includes one that says: “The coal block allocate for IPPs shall sell power from their notified and use plants to the state distribution companies or state nominated agencies through competitive bidding and enter into long-term power purchase agreements, else their block may be deallocated.” The ministry has told states that companies with coal blocks whose plant is already commissioned or likely to be commissioned in the next 18 months and where coal production has commenced or about to begin need to sign power purchase agreements in 18 months from the date of the government directive “failing which permission to mine the coal block may be withdrawn/suspended”. Companies whose blocks have not started production need to sign long-term PPAs at least six months prior to commissioning the plant or face cancellation or suspension of the permission to mine coal.

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