Power firms may contest post-auction rule changes
Allottees of coal blocks meant for power projects are likely to move court over changes in rules after their auction. They could also threaten to surrender the blocks.
A person close to the development said barring two or three companies, power producers that won coal blocks were likely to file a petition in the Delhi High Court. The power companies awarded coal blocks earlier this year are GMR Energy, Jindal Steel & Power, Essar Power, Monnet Power, CESC, Durgapur Power, Adani Power, Jaiprakash Ventures and Hindalco.
The Central Electricity Regulatory Commission (CERC) on April 16 disallowed passing fixed costs on to the final rate by power producers that won coal mines. The CERC order restricts a higher energy charge by the coal block winners and allows only downward revisions.
“The revision of tariff undertaken by the CERC shall not lead to higher energy charges and total tariff throughout the tenure of the power purchase agreements,” said a directive of the power ministry to CERC.
The power companies had had pledged a ~96,971-crore reduction in rates for 11 coal blocks during the contract period.
The power ministry had asked the CERC to review the energy components of rate, including the price of coal according to the auction, transportation cost, washery and crushing charges, royalty and levies. Transportation costs should not exceed those of Coal India Ltd. The other rate components must abide by the bidding document for the auction.
Coal ministry officials said the bidding document disallowed any pass-through on the final rate, which they said “companies knew of and had bid accordingly”. The document required winners to submit fixed cost details and final tariffs on the basis of their bids.
For the capacity addition already contracted under a power purchase agreement, the allocation of a coal block to a power producer would be treated as change of law. “This will enable revision in rate downwards, in accordance with the provisions of the power purchase agreement,” said the CERC directive.
Coal ministry officials said they had not received any communication by any power company, but any legal move would entail revoking of bank guarantees, running into hundreds of crores of rupees.
An official, requesting anonymity, said if the auctioned blocks came in for legal scrutiny, power plants would not receive their preliminary coal linkage. The coal ministry has facilitated coal linkage to the power plants till they start producing coal from their mines.
“If the companies surrender the coal blocks, they will have to pay the bank guarantee, which is tantamount to two years’ mining plan. Also, companies surrendering blocks will be blacklisted in auctions for one year,” the official added. The coal ministry in its first auction of 40 coal mines allotted 11 to power companies. All bidders for these blocks had bid negative. This has to be discounted in the final power tariff wherein the cost of fuel is taken as zero. Rough calculations by the coal ministry, peg every negative bid of ~100 per tonne resulting in a six paise reduction in the power rate. The power ministry has decided to review the power purchase agreements of the coal block winners to ensure the benefit is passed on to consumers.