Long-term deal with power distributors, must for Coal India supply

Power generators who do not have power purchase agreements (PPA) with electricity distribution companies will not get Coal India supplies.A senior power company official said about 20,000 MW of merchant power projects will be stranded if the Government does not review its decision. 

The Government has directed Coal India to sign FSAs (fuel supply agreements) with plants that have entered into long-term PPAs (power purchase agreements) with power distribution companies that have been commissioned or would get commissioned on or before March 31, 2015. Coal India has begun the process of inking the supply agreements. 

Merchant power projects were set up under the Government-initiated programme to draw private participation into the sector in 2006. The Government had also extended support to them in land acquisition, rehabilitation and clearances. 

Mr Shubhranshu Patnaik, Senior Director, Deloitte in India, said about 35,000 MW of merchant power projects were being set up, mostly in Odisha and Chhattisgarh. Some projects (Lanco in Odisha and Essar Power in MP) have inked PPAs with states.

Most merchant plants have memorandums of understanding with State Governments in Odisha and Chhattisgarh, under which they need to offer 5-10 per cent of power at a concession rate and another 20-25 per cent at tariffs regulated by the State electricity regulators.Developers were free to sell the remaining power via the merchant route. 

Given the constraints Coal India is under, it would be difficult for them to get FSAs, as the priority is PPA-linked developers, he said. 

Mr Ashok Khurana, Director-General of the Association of Power Producers, said the Government cannot allow coal at subsidized rates to be passed on to the private sector. If merchant power plants require Coal India supply, they need to get into PPAs, irrespective of whether they had the Letters of Assurance from Coal India, he said. 

Source: Business Line