Issues of coal and gas shortage and cut in duty on imported coal are likely to be discussed

Prime Minister Manmohan Singh has convened a meeting of top power sector honchos on January 18 amid rising concerns about continued shortage of coal and gas that has hampered power production and stalled power sector reforms. The cut in customs duty on imported coal has also badly impacted the ultra mega power projects (UMPPs).

Among the prominent names that would be present during the meeting with the Prime Minister include Tata Power Chairman Ratan Tata and Deputy Chairman, Cyrus Mistry, Reliance Power Chairman Anil Ambani, JSW Energy chairman Sajjan Jindal, CLP group Hong Kong Global CEO Andrew Brandler, Lanco Infratech Chairman, L. Madhusudan Rao, Adani Power Chairman Gautam Adani, G. M. Rao of GMR Energy, Naveen Jindal of Jindal Power, Anil Agarwal of Sterlite Energy, Prashant Ruia of Essar Power, and Sudhir Mehta of Torrent Power.

The meeting with the Prime Minister comes after continued postponement of the review meetings on power and coal shortages by the PMO during the last six months. The power industry mandarins have been trying to draw the attention of the government to their plight. A series of “political crisis” facing the UPA II has left the decision making a big casualty.

‘Uncertainty'

The CEOs are likely to take up with the Prime Minister the issue of “uncertainty” surrounding the power sector due to not only shortage of coal but also shortfall in even allocated gas from the KG-D6 block of Reliance Industries, which had put a question mark over the future of many projects. The Association of Power Producers (APP) Director-General, Ashok Khurana, has urged the government to consider discontinuing gas to non-core sector and use the same for core sectors such as power and fertilizers. He pointed out that 4,000 MW of power capacity was lying idle in the absence of gas supply.

Contentious issue

The other contentious issue likely to figure during the meeting is of imported coal. The Chaturvedi Committee has suggested exempting imported coal from the 5 per cent customs and 5 per cent countervailing duty (CVD). The government had set up a committee headed by Planning Commission member (Energy) B. K. Chaturvedi to suggest measures to increase coal production and increase its availability to meet the growing needs of the power sector.

In the last few months, the country had been facing coal shortage due to fall in domestic production. Imports too have gone down dramatically due to a sharp rise in the cost as countries such as Indonesia and Australia have imposed additional duties, taking the price from $30 to $150 a tonne.

The committee noted that sudden changes in the Australian and Indonesian coal block policies had impacted the ultra mega power projects and other plants to the extent of 15,000 MW. The changes made the power purchase agreements (PPAs) unworkable for the power producers who had signed agreements with the State governments.

Tariff revision

The Planning Commission Deputy Chairman, Montek Singh Ahluwalia, in his recent report to the Prime Minister, has sought revision of power tariffs to reflect higher international coal prices, as a large number of power projects, including ultra mega power projects under implementation, have run into serious ‘viability problems'. It has also stated that it is time that “open access” in the power sector is introduced without any further delay.

Other issues likely to come up for discussion include absence of level-playing field for plants using blended coal, viability of plants based on imported coal due to lack of provision for tariff revision and growing risk of bank loans drying for setting up power plants as a fall-out of discoms' mounting losses. Following a recent directive from the Reserve Bank of India, banks have stopped lending to discoms. The Planning Commission has warned that there is risk of banks turning wary of lending to power generation projects.

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