Caloric. Value

Revival Strategies for Indian Power Sector

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India being fifth largest energy consumer in the world is rising high in terms of installed capacity (207 GW,Source : CEA as on 11.Nov.2012). Much progress is evident in Infrastructure,Telecom but things in power sector is not going as per the planning done by our GoI and MoP and thus India’s economic growth is at risk. Inspite of  having so many reforms and policies,Indian power sector is grappling with “Cancer” and it requires some sheer reforms that will ultimately lift it to more sustainable position. Some of recent reforms/policies that have jolted Indian power sector in recent times can be summarised as below:

  1. Competitive Bidding of Captive Coal Blocks: Competitive Bidding Mines Rules,2012(http://www.coal.nic.in/100212.pdf) has been notified in Feb,2012 and according to which Captive coal blocks will be allotted on the basis of competitive bidding to the power plant developers.After the recent COAL SCAM(http://en.wikipedia.org/wiki/Indian_coal_allocation_scam) there was a lot of hue and cry about the allotment of coal mines to non serious players in the Indian power market.Almost each and every bidder has earned a windfall gain through the Coal Scam. According to the recent Competitive Bidding guidelines, Coal will now be allocated to companies in specific end use sectors(excluding power companies) through an auction under which two part bids would be invited over a floor price.For power companies, the respective state will select a developer on the basis of competitive tariff bids and recommend coal block allocation. Moreover power companies are required to pay the reserve price fixed by state government for such coal blocks.
  2.  Approval of draft of MMDR(Mines and Minerals(Development and Regulations) Bill,2011: Another much awaited bill is the MMDR Bill(http://pib.nic.in/archieve/others/2011/sep/d2011093002.pdf) which has been approved by the cabinet in Sep,2011.It will be enacted after getting approval from President as well as Parliament.The bill provides a strong legislative environment for socio- economic conditions of the mining areas and the people which are effected  by the same.The core of bill is a provision that mandates coal mining lease holders to contribute 20% of their Post tax profits( PAT -It is the net profit earned by the company after deducting all expenses like interest, depreciation and tax.PAT can be fully retained by a company to be used in the business. However dividend is paid to the share holders from this residue.) to a distinct mineral fund,which will be used to meet social compensation obligations.With the advent of this policy,it might make a dent to the profits of CIL,SCCL and they can take a harsh step of increasing the coal prices which will affect the developers and consumers at last.
  3. Revision of Royalty Rates: Another significant aspect that occurred in recent times is the revision of Royalty rates in which there is an increase of 14% ad valorem and 6% advalorem on coal,lignite respectively.(http://pib.nic.in/newsite/erelease.aspx?relid=82191)
  4. Exemption of Import Duty on thermal Coal:  The finance Bill that has been passed by Parliament enforces the exemption of  5% basic customs duty and 1% Countervailing duty  on thermal coal imports for indefinite time.This is major step in favour of major coal importers as well as power plant developers.Moreover,ECB has been allowed in case of Indian power sector which will be used to part finance the rupees based debt of power plant projects.
  5. Presidential Decree to CIL:  A presidential decree has been issued to CIL for supplying coal to power generating companies under the terms and conditions of FSA.
  6. Revision of Standard Bidding Documents: In the generation side, There has been a major revision in case of Case 1 and Case 2 Bidding Documents in lieu of competitive bidding.MoP has also issued drafts related to UMPP Power projects and these aimed at more stringent bidding process with higher performance guarantees and other eligibility norms.Only core sectors companies can participate in bidding process and company can’t have more than 3 UMPPs in the pre commissioning stage.CERC has been made a regulatory body to intervene in the cases related to PPAs.
  7. Issue of Guidelines for Short Term Market: MoP released a notice of guidelines related to comptetive bidding in short term power market(accounts for 10% of the total electricity generated in the market).
  8. Imposition of Import Duty on Power Equipment:  Union cabinet approved the request of imposing 21 % import duty on the power plant equipment. The move has been taken to restrict the cheaper equipment that are being used in the Indian power scenario thereby hampering the growth of Indian manufacturing industries which are still struggling to develop the power plant.
  9. Steps in Renewable Sector: A major step taken in Renewable sector is the withdrawal of Accelerated Depreciation and GBI i.e Generation Based Incentives (http://www.eai.in/debate/scrapping-of-the-accelerated-depreciation-incentive-for-wind-projects). This move will led to low capacity additions in the coming years & it has been speculated that MNRE will reintroduce incentives in the 12th plan.
  10. Regulatory Initiatives: CERC has played major role in the past year in formulating various key policies especially related to transmission and distribution sector i.e tightening of frequency band from 49.5 – 50.2 to 49.7 – 50.2 Hz. This has been primarily done to increase grid security in more stricter manner (under Electricity Grid Code 2010)
  11. Ensuring Timely tariff revision: In Nov 2011,APTEL (Aplleete Tribunal) passed a landmark judgement regarding timely revision of tariffs by state DISCOMs.SERCs(StateElectricity Regulatory Comissions) has been directed to issue suo moto proceedings for tariff determination within a month of scehduled tariff petition.In June 2010,GERC became the first commission to implement APTEL’s order.
  12. Implementation of Open Access: In Nov 2011,MoP announced all consumers to be eligible for Open Access who have their load more than 1 MW.Moreover state regulators have jurisdiction over fixing of energy charges for these consumers. Inspite of these efforts, there is a need to take strict steps to implement it as in some cases like Odisha they are trying to suppress it by Sec 11 of EA 2003.
  13. Renewable Energy Regulations: Renewable Energy Regulations has been made effective from 1st,April 2012 for five years.It lays down the guidelines for tariff determination and moreover the floor prices, forbearance prices have been revised. Forbearance Price of Non Solar RECs Rs 3300/MWh & Floor Price as Rs 1500/MWh(Solar RECs).

So, a bunch of steps have been taken to revive the Indian Power Sector but the Sector requires strong implementation strategy which will ultimately make India from Power deficit nation to power surplus nation.

References: PowerLine Magazine,Govt. sites like MoC,MoP etc

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Is GCV Method apt for Indian Scenario??

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The average cost of coal production in India is steadily increasing, despite increase in
productivity. The coal pricing mechanism is not consistent with the international practice.
Prior to nationalization in 1973, coal prices were set administratively low in comparison
to the production cost leading to losses for many coal mining companies. To allay some
of these losses government set up the Bureau of Industrial Cost & Prices in 1970 to
recommend the appropriate price of coal, based on the average of production cost of all
mines which led to problem for the coal companies with high production cost. In 2000 a new
Colliery order was passed for deregulating the prices of all the grades of coal and Ministry of
Coal will no longer involved in setting the price of coal. According to the order each coal
company is allowed to set its own sale price based on the prevailing market prices.
The recent move of Coal India to resort to fix sale price of coal on Gross Calorific Value (GCV)
rather than on useful heat value of the fuel will have a direct impact on the sale price. This
clearly indicates that Colliery order which is still in place, but only on the paper as the prices
are still being guided by the Government. Though the GCV practice is very much consistent
with the International practice, we need to address one main question as far as India is
concerned: Do we have the proper infrastructure in the place which can accommodate this
practice? As per CIL, the move will have negligible effect where as NTPC claimed that their
coal bill will be rise by 40% from ` 20, 000 Cr to ` 28, 000 Cr. Also there is no clarity on the
method which is to be adopt by CIL for classification, sampling and analysis to finalize the
grade of coal or GCV band of mine. Another important question which raises concern that
why Coal India has gone for GCV analysis on its own where as the Office of The Coal
Controller is the authorized body for declaring the grades and ascertaining the coal
availability. NTPC the largest consumer of coal has requested the Power Ministry to take up
Tthe issue with Coal Ministry. But, all goes in vain as Coal India moved to the new system from
January 1, 2012.
Many of the public utilities have complained that this new system had resulted for wrong
classification of coal because the quality of the same coal which they were getting before 31
st
December, 2011 as 4200 GCV now they are procuring as 5300 GCV. This points the accusing
finger on the classification procedure and implementation of GCV by CIL. Companies have to
pay much higher prices for the same quality coal than what is required. It is good to keep
pace with international practices but to implement it blindly without proper planning is
surely not a justifiable move by CIL.