States ready with grouse list for meeting

Last Updated: Sun, Jul 15, 2012 19:40 hrs

The states have quite a few issues to take up with the Centre this week. The Planning Commission’s meeting on Tuesday will see them discussing matters like rising fuel mismatch, delay in Coal India’s signing of fuel supply agreement, deteriorating finances of distribution utilities and restoration of lending to distribution utilities by banks. Technically, the event is being held to seek the states’ views on the approach paper of 12th Plan (2012-17) with a proposed addition of 1 lakh megawatt power capacity, but the states are keen to flag off several current issues.

Union power minister Sushilkumar Shinde on Sunday confirmed the date of the meeting.

Mahavitaran, the Maharashtra state electricity distribution company, noted that fuel being a major issue, there was an urgent need for a government policy on its availability, quality and pricing. “For example, Andhra Pradesh has several of its gas-based power being closed down,” pointed out Mahavitaran managing director Ajoy Mehta. “There have been delays in signing of FSA (fuel supply agreement) besides serious issues of transportation of fuel,” he told Business Standard. Further, the government needs to put in place a uniform policy for viable tariff, said Mehta, who is also holding additional charge as Maharashtra’s energy secretary.

  • Coal import of 213 million tonnes by 2017 may face blending constraints
  • States in favour of early signing of FSA but seek amendment to force majeure provision
  • Cash-strapped distribution utilities pitch for uniform policy for tariff and restoration of lending from banks
  • Open access to be a non-starter unless mechanism is put in place to ensure affordable tariff to subsidised consumers

The approach paper states that the expected demand for coal from the power sector cannot be met, except through a significant increase in imports. This poses two problems. First, the country’s power plants are not designed to take more than 10 to 15 per cent of imported coal. Besides, power producers are not willing to accept higher cost fuel as it would them at a disadvantage compared to producers using domestic coal. “It is essential to develop some mechanism of providing power producers with a mix of domestic and imported coal consistent with their technical constraints so that the higher cost of imported coal is averaged with the lower cost of domestic coal,” it adds.

The Association of Power Producers has suggested coal pooling as an option to realise large-scale coal imports. “This has the potential to address issues relating to inadequate coal, low level of affordability of imported coal, disproportionate allocation on single entity and lack of optimal allocation and movement of coal,” it said.

According to former union power secretary R V Shahi, fuel mismatch is the most severe issue. “It will persist unless government and regulators resolve the issue of cost pass through of imported coal, which has become a compulsion due to gross failure of the domestic coal production,” he said. “Generators cannot import coal and supply power at a loss. The 12th Plan capacity addition target cannot be met unless these issues are resolved immediately. Lenders have again become reluctant to lend.”

The states are also expected to take up the contentious issue of open access. Despite the provisions of Electricity Act, 2003, mandating it, state after state is reluctant to provide open access, citing rising mismatch between the demand and supply of power. A distribution utility’s managing director, who did not want to be named, said open access could become a reality when policy intervention was brought in to deal with the subsidised category —mainly agriculture and small-scale users. “Open access will remain a non-starter unless a mechanism is put in place to ensure affordability of tariff for agriculture and small-scale users.”

Moreover, the paper notes that a transition to “more rational” energy pricing requires upward adjustment in all these prices.

The involvement of different ministries necessitates a coordinated view on a holistic understanding of the rationale of the move. The adjustment needed cannot be achieved in one go, but the process must begin so that a full adjustment occurs over two or three years, it adds.

A power ministry official informed that several utilities were in the process of revising tariff. Some utilities have revised it by 7-37 per cent. “However, banks have stopped providing loans to a large number of discoms due to a mismatch between the realisation and dues from various consumers,” he said. “The issue is being currently discussed at the level of principal secretary to the prime minister.”

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