Fuel Costs Must Pass Through in Power

The Economic Times - - Breaking Ideas -

There is need­less un­cer­tainty over tar­iff re­vi­sion for coastal power plants us­ing un­ex­pect­edly dearer im­ported coal, when it ought to be par for the course to treat fuel as “pass-through” costs, with price bid­ding con­fined to non-fuel pa­ram­e­ters. It is wel­come that the Supreme Court has now called for a tar­iff re­view for the con­cerned Adani, Tata and Es­sar Power plants, but most un­for­tu­nate that the is­sue has been drag­ging on from 2010, fol­low­ing changed rules for In­done­sia coal prices.

Given their par­lous fi­nances and long year of po­lit­i­cally man­dated give­aways and pa­tron­age of theft, state power util­i­ties seem un­able to com­pro­mise and duly seek re­vised tar­iffs for the com­pet­i­tively bid projects. Re­ports say the re­vised fuel prices are likely to be a small frac­tion of the to­tal per-unit power prices for the state util­i­ties. In any case, the re­vised prices are likely to be far lower than from new plants. Be­sides, there is am­ple built-in pro­vi­sion to duly re­vise and pass-through higher oper­a­tional and main­te­nance ex­penses for com­pet­i­tively bid power projects. And yet, the is­sue of com­pen­satory tar­iffs has not been am­i­ca­bly re­solved. The way for­ward, surely, is for all stake­hold­ers, in­clud­ing project de­vel­op­ers, power pro­cur­ers (read: state util­i­ties) and con­sumers, to make con­ces­sions and be open to tar­iff re­vi­sion in the nor­mal course. We do need a proper mar­ket for power, so that more ef­fi­cient pro­duc­ers can com­pet­i­tively seek cus­tom. Fur­ther, the re­vised pooled price of power is likely to be more mod­est any­way. We do need more trans­parency right across the board in the power sec­tor. Power util­ity fi­nances need to be manda­to­rily pub­lished on a reg­u­lar ba­sis. It would also make per­fect sense to have a more com­pet­i­tive and ef­fi­cient mar­ket for the main fuel, coal.

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