Its All About Power Sector

• The Design Turbine Cycle Heat Rate (THR) for Chinese 300 MW units is around 1910 kcal/kWh as compared to around 1945 kcal/kWh for BHEL 250 MW units. However, the Design Heat rate for Chinese units do not correlate well with the steam flows indicated and large variations in design steam flows are seen for similar indicated design THR.
• The Design THR of Chinese 600 MW machines is 1954 kcal/kWh for two stations and 1945 kcal/kWh for one station. However, the Design Heat rates for Chinese machines do not correlate well with the steam flows indicated. The Design THR of BHEL 500 MW machines is around 1944 kcal/kWh for normal reheat temperature and 1932-1936 kcal/kWh for higher Reheat temperature (565 deg C) machines. Thus the Turbine cycle heat rate of BHEL machines is better than the Chinese 600 MW machines - by about 10 kcal/kWh for BHEL normal reheat temperature machines and 22 kcal/kWh for higher reheat temperature machines.
• However, the regenerative system configuration of Chinese machines is different from BHEL machines and Chinese 300 MW units have higher steam Pressure also. Thus on like to like comparison basis the BHEL machines indicate higher cylinder efficiency implying that their design/construction in terms of blading provided, sealing etc. renders higher efficiency
• Amongst the Chinese 600 MW and BHEL 500 MW turbine generators, only the BHEL machines with higher Reheat temperature of 565 deg C comply with the minimum efficiency criteria (maximum THR of 1935 kcal/kWh) prescribed in the CEA Technical Standards for Construction of Electric Plants and Electric Lines Regulations - 2010.
• The anomalies/discrepancies in the design Turbine Cycle Heat Rate, Steam flows design margins of Chinese machines is indicative of lack of due diligence by the suppliers and utilities/generating companies on the above aspects - some of them being mandatory as laid down in the CEA Technical Standards for Construction of Electric Plants and Electric Lines Regulations - 2010.
• It is thus suggested that the generating companies while making Tariff Application to CERC/SERC may be asked to furnish details key design/efficiency parameters with an undertaking certifying compliance to "CEA Technical Standards for Construction of Electric Plants and Electric Lines Regulations 2010". It is suggested that a formal advice to the above effect may be issued to Central Electricity Regulatory Commission.
• The Design boiler efficiency for BHEL units and Chinese units designed for indigenous coal is of the same order. However overall variability of design boiler efficiency amongst stations is higher for Chinese units. Also, apart from the design boiler efficiency, the operating efficiency with coal quality variations within or outside the design coal quality range is important. However such feedback would be available only after sustained operation of stations with different quality coals.
• Both, the Chinese 300 & 600 MW and BHEL 250 & 500 MW units have adequate flow margins - VWO and BMCR margins. However the Chinese 330 MW machines have a composite TMCR to BMCR margin of 5.34 % which is very low and does not appear to be compliant to the CEA Technical Standards for Construction of Electric Plants and Electric Lines Regulations - 2010 and the provision of instantaneously load picking of the Indian Electricity Grid Code (IEGC).
• Chinese units based on indigenous coal show a much lower Operating Load Factor (OLF) than the Chinese units based on imported coal. The overall average OLF for Chinese stations based on imported coal works out to 80.4 % while for Chinese stations based on indigenous coal it works out to be 57.2 % against 71.6 % for BHEL units. Thus the Operating Load Factor of BHEL units with indigenous coal have been higher than Chinese units based on indigenous coal.
• Total outages for Chinese units based on indigenous/domestic coal are higher than the Chinese units based on imported coal and BHEL units. The overall average of total outages for Chinese units based on indigenous coal is 23.5% while it is 14.1 % for Chinese units with imported coal and 18.7 % for BHEL stations. Excluding stations with very high outages, the total outages are 17.4 %, 7.6 % and 12.6 % respectively for Chinese indigenous coal, Chinese imported coal and BHEL units.
• The Operating Heat Rate (OHR) of Chinese indigenous coal based units is considerably higher than BHEL units and Chinese units based on indigenous coal. The overall Operating Heat Rate is 2719 kcal/kWh for Chinese indigenous coal based units and 2520 kcal/kWh for BHEL indigenous coal based units''. Also the Chinese units indicate higher operating deviation from design heat rate Vis-a-vis BHEL units.
• The OHR for Chinese imported coal based units is 2275 kcal/kWh and the difference vis a vis Chinese indigenous coal is considerably larger than could be accounted for the higher boiler efficiency (due to better coal quality) thereby implying that units with imported coal have been performing better than indigenous coal based units.
• Large number of BHEL stations have shown very low Operating Heat Rate with deviation from Design Heat Rate (DHR) of 2-5 % while most Chinese units with indigenous coal have shown much higher Operating Heat Rate - with deviation from DHR of around 10-12 %. The operating deviation for Chinese units based on indigenous coal is much lower than Chinese indigenous coal based units.
• The BHEL units show remarkably better performance with respect to Secondary Fuel oil consumption as compared to Chinese units based on indigenous coal.
• The overall SFC for Chinese units with indigenous coal is 6.13 ml/kWh and for BHEL indigenous coal based units'' 3.06 ml/kWh. The overall SFC for Chinese units based on imported coal is 1.34 ml/kWh.The level of automation in Chinese turbines is much less than the BHEL turbines. The Chinese turbines do not have many safety and analysis/diagnostic functions such as Turbine Stress Evaluator (TSE) and Auto Turbine Run-up Systems (ATRS) in their control system. Thus, lot of manual interventions are envisaged during start up as well as during normal operation of Chinese machine contrary to philosophy of fully automated system with minimum manual intervention in BHEL machines. Manual intervention during critical operations gives rise to subjectivity with the possibility of mal-operation and accidents

The above facts speak that the control systems of Chinese turbines seem to be not in line with the prevailing modern turbine design/technology. In this view in July 2012, the government had slapped 21 per cent import duty on power equipment. The Cabinet, last year, had approved 5 per cent basic customs duty, 12 per cent counter-veiling duty and 4 per cent special additional duty on import of power gear. As domestic industry has enough capacity to provide after-sales services, the Chinese firms have already captured as much as 40% of the domestic market where an opportunity of annual sales of 17,000 Mw capacity exists at present. India has a current domestic equipment manufacturing capacity of 27,000 Mw. Power equipment worth Rs 130,000 crore was sold in India last financial year. Around 28% of this comprised generation equipment while the rest 72% of the sales occurred in the transmission and distribution sector.

At times it sounds necessary for India to look for import of Chinese Equipment in order to meet its projected capacity additions which is also very vital for the country be to be more energy secured. The Indian government's support to the domestic manufacturers as not been so encouraging with many manufacturers expressing a discomfort from the recent decisions taken by the govt. in respect to Chinese Equipment manufacturers. All these entail the Indian Govt. to provide a more competitive platform so as to balance both these markets.

Content Writer: Sweta Bhattkoti (Research Analyst @ Cerebral Business Research Pvt. Ltd)

1. Grid connected Projects: MNRE is proposing a minimum target of adding of at least 9,000 MW solar capacity to grid during Phase-ll. Under this target of 9,000 MW, at least 3,000 MW will be developed under Central scheme and at least 6,000 MW under State schemes. This capacity will be further split as per technology i.e. Solar PV and Solar Thermal. Under Central scheme solar PV will be at least 2,500 MW whereas solar thermal may be 500 MW. Similarly, under State schemes, 5,500 MW of solar PV and 500 MW of solar thermal capacity is proposed to be developed. However, the breakup in between Solar PV and Solar Thermal may change depending upon advancement in technologies, response and price trend.
   Unlike Phase-I, JNNSM Phase-ll aims for achieving significantly higher scales of targets. Hence, Ministry is contemplating all possible options for implementation of the Mission. Selection of capacity for Phase-ll, grid connected projects will be done via different schemes such as Bundling, Generation Based Incentive (GBI), Viability Gap Funding (VGF) and Low Cost Financing Scheme will be implemented in a manner similar to Phase-I.
   Each scheme shall have specific capacity allocation targets. Proposed capacity for GBI and Bundling scheme are 200 MW and 500 MW respectively whereas 2,300 MW is proposed to be implemented via VGF scheme. This allocation of target capacity may be altered depending upon the availability of resources.
2. Rooftop PV programmes: Phase-ll would focus on rooftop PV systems both at Grid and Off-Grid levels in the country. Power generated by these systems would be utilized by Industrial and captive loads and feeding excess power to the grid as long as grid is available. The off grid roof top PV systems would be deployed at places which are not connected to the grid or connected but not getting electricity from the grid. In total, the phase-ll of JNNSM shall target deployment of 1,000 MW of rooftop projects.
3. Off-grid Schemes: Phase II will also focus on Solar off grid generating systems, solar home lighting systems and various other forms of solar based heating/cooling/thermal application in domestic, commercial & industrial segments.
4. Energy Access: Phase II would focus on developing standalone solar off grid generating systems. Around 20,000 villages/Hamlets/ Basti / Padas shall be covered through Energy Access scheme.
5. Off-grid Lighting Systems: Phase-ll of the Mission would focus on off grid lighting systems such as use of solar lanterns, solar home lighting systems and solar street lighting systems. Phase-ll would target for deployment of around ten (10) Lakh Off-grid lighting systems.
6. Solar Cities: Solar Cities aims to motivate the Local Governments for adopting renewable energy technologies and energy efficiency measures. With this objective, Phase-ll of JNNSM would focus on development of 15 solar cities in addition to existing 60 Cities.
7. Solar Water Pumping: Solar PV water pumping systems are used for irrigation and drinking water in India. These pumps operate on solar energy and do not require any diesel or electricity. These pump sets also have very little operating costs. Hence, Phase-ll targets deployment of 25,000 solar pumps by the end of F.Y. 2017.
8. Telecom Towers: The telecom towers in India consume about 2 billion liters of diesel fuel per annum. In this backdrop, Phase-Il would focus on developing special schemes for promotion of solar telecom towers and would target around 25,000 solar integrated telecom towers.
9. Solar Water Heating System: Phase-ll would target around 8 million Sq.m. of collector area for solar water heating purpose by the end of 2017.
10. Solar Cookers and Steam Generating Systems: Dish Solar Cookers use solar energy for cooking. Similarly steam generating systems are used for cooking applications in larger units like Hostels, Hospitals, Hotels, Ashrams etc. JNNSM Phase-ll will target 50,000 solar cookers.
11. Industrial Process Heat Applications: Indian Industries consume over 15 million tones of the fuel oil for Industrial heat application below 250° C likewise over 35 million tones of fuel oil for application temperatures above 250° C. Use of Concentrated Solar Thermal (CST) Systems can save significant amount of fuel oil during the daytime. Hence Phase-ll is targeting at least 400 systems, 250 sq.m. each on an average (1,00,000 sq.m.) of CSTs for heating applications in industries.
12. Air Conditioning/Refrigeration: Solar air-conditioning also has vast scope at places where cooling is required mostly during daytime. This includes office complexes, educational institutions and commercial establishments like Malls etc. Hence Phase-il has set a target of at least 200 systems, 30 TR each on an average (60,000 Sq.m) for air conditioning / refrigeration systems.
13. Solar Hybrid Systems: Phase-ll will focus on development of hybrid technology. It is envisaged that 20 pilot hybrid projects will be set up under Phase-ll.

• The Ministry has formulated a Scheme for Setting up of 750 MW of Grid-connected Solar PV Power projects under Batch-I of Phase-ll (2013-17) of Jawaharlal Nehru National Solar Mission (JNNSM) with Viability Gap Funding support to the tune of  INR 1875 Crore (maximum) from National Clean Energy Fund (NCEF). Proposal for implementation of this scheme was first placed for consideration of the Inter Ministerial Group (IMG) in its meeting held on July 18, 2012 and has been approved in its meeting held on February 25, 2013.
  The scheme will be implemented through the Solar Energy Corporation of India (SECI), a Section 25 company set up by the Ministry. The projects, to be set up on Build-Own-Operate (BOO) basis, will be selected through bidding on VGF required by the developers in order to enable them sell power to SECI at a fixed levelised tariff of Rs.5.45 per kWh for 25 years. SECI will sell this power to those State Utilities/ Discoms who are willing to buy solar power at a fixed tariff of Rs.5.50 per unit for 25 years.
  Consequent to IMG approval, the Ministry has formulated draft guidelines for implementation of the scheme and placed the same on its website for comments/ suggestions from all concerned stakeholders. It has also held consultation meetings on the scheme with specific stakeholder groups (Developers/ Manufactures and Financial Institutions) and has received useful inputs for finalizing the guidelines.
• Draft Note for requisite approval of CCEA has been circulated to concerned Ministries/ Departments for their comments.

(Also Read Review of what has JNNSM Phase-I embarked upon in the past)
(Also Read JNNSM Phase-II to Mind these Facts Before Unveiling)

Source: Cerebral Business Research Pvt. Ltd.

• Poor achievement of the projects under CSP.
• Imbalance between capacity creation through thin films and crystalline PV technologies.
• Heavy dependence on imported equipment.
• Under utilization, coupled with poor growth of domestic manufacturing capacity (particularly solar cells).
• Requirement of generous support of fiscal incentives, viz., AD, VGF and feed in tariff.
• Inadequate development of R&D infrastructure.
• Concentration of growth of solar power in a handful States.
• Inadequate Evacuation infrastructure.

(Also Read what is instore for JNNSM-PhaseII)

(Also Read Can JNNSM-Phase I Achievements Fuel Phase-II?)

 Source: Cerebral Business Research Pvt. Ltd.

1. Deployment of 20,000 MW of grid connected solar power by 2022
2. 2,000 MW of off-grid solar applications including 20 million solar lights by 2022,
3. 20 million sq. m. solar thermal collector area,
4. To create favourable conditions for developing solar manufacturing capability in the country and
5. Support R&D and capacity building activities to achieve grid parity by 2022. The Mission is to be implemented in three phases.

Twelveth five year plan unlike other five year plans is showing a better statistical performance comparitively. This will only be justified when the generation targets meet the Demand and Supply of the nation. The coal shortages and low gas supplies remain to hinder the PLF's of thermal power plants.Coal imports & pricing and gas pricing are other issues that need better attention in this five year plan. Below is a brief outlook of the performance statistics for the second quarter.

1. Government Update: The overall performance of the power sector during the first six months of 2013-14 has been fairly good in respect of most of the parameters. Ministry has taken several policy initiatives during the last quarters which are enumerated below:
   1. Standard Bidding documents for Case II bidding has been finalized. Case I bidding is in advance stage and likely to be finalized in a couple of weeks. 
   2. Two more UMPPs have been taken up, one in Tamil Nadu and the other one in Odisha. These are Coastal Tamil Nadu Power Ltd., Cheyyur UMPP and Odisha Integrated Power Ltd., Odisha UMPP. RFQ has been issued for these two UMPPs on DBFOT basis on September 26 and September 25 respectively. Notice for Pre-Application Conference for these two UMPPS was held on October 15, 2013. 
   3. A draft Cabinet Note is being finalized for extension of time on cost plus based tariff fixation for Hydro electric projects up to March, 2017. As per the Tariff Policy 2006, cost plus tariff regime for hydro power projects is allowed till December, 2015. 
   4. The power of CEA for techno economic clearance for hydro projects is proposed to be extended from present limit of INR 500 crore to INR 1000 Crore.
   5. Guidelines has been finalized under the Hydro Policy, 2008 for 1% free power for local development and circulated to all the State Governments for its implementation.
   6. The draft amendments to the Electricity Act, 2003 has been uploaded on Ministry of Power's website for inviting comments. 
   7. In the wake of massive failure of grids last year (2012) and based on CEA's recommendation, it is proposed to make Posco an independent institution under the Government instead of a subsidiary of Power Grid presently.
   8. Ministry is proposing to bring a new business model where the power supplier and the electricity distribution network provider will be separate entities controlling the content and wires separately.
   9. A draft cabinet note has been circulated on amending Mega Power Policy 2009 to extend benefits to provisional Mega power Projects who are compelled to tie up to 35% of power with the respective states in lieu of facilitation of project implementation. Such developers will have to tie up at least 65% of installed capacity/net capacity through competitive bidding from the existing 85%.
   10. Ministry is regularly monitoring the progress of RGGVY and R-APDRP rigorously with the States.
2. Capacity Addition: A capacity addition target of 4423.8 MW for the second quarter of 2013-14 comprising of 613.3 MW (Central Sector), 1731 MW (State Sector) and 2079.5 MW (Private Sector) was set. Against this target, the actual achievement during this quarter has been 2286 MW which is 51.7% of the target, indicating a slight slowdown. The Private Sector addition was far better than in the Central and State Sectors.
3. In the Private sector, a capacity addition of 1250 MW (60.1%) was achieved, while achievement! n the State sector was 916 MW (52.9%), thus fell short of their targets of 2,079.5 MW and 1,731 MW respectively. However, there was major substantial shortfall in the Central sector achieving only 120 MW (19.6%) against a target of 613.3 MW.
4. The cumulative capacity addition during the XII Plan period at the end of the second quarter (September 30, 2013) was 25,421 MW against the XII Plan target of 88,537 MW.
5. The total capacity addition of 4798 MW in the first two quarters, 4,501 MW (93.8%) was thermal and 297 MW (6.2%) hydro. Out of the total thermal capacity of 4,501 MW, 4230 MW (88.2%) was coal based & 271 MW gas based (5.6%). Gas-based plants continues to run on low capacity factor due to shortage of gas. Further, major sourcing of plant and equipment was of Chinese origin.
6. Currently, more than 60,000 MW of Chinese power plants are in operation or under construction. In the current Annual (2013-14) thermal target for Chinese equipment of 5,975 MW, the achievement during the first six months has been at 3,030 MW (50.7%), whereas the achievement in BHEL is very dismal as during the same period the achievement has been at 1,121 MW as against the target of 9234.3 MW.
7. Generation: The electricity generation during the second quarter was 242.8 billion units (101%) of the targeted 241.586 billion units (bu). Overall the generation during the first half year has been at 481.849 bu (100%) achieving a growth of +5.73% over 2012-13.
8. The overall availability of coal for the power plants was better with total availability going up to 239.9 million tonnes against 215.7 million tonnes with a growth of 11.2%. Most of this increase of 24.2 million tonnes (MT) was contributed by imported coal which increased to 43.1 MT as against 25.9 MT last year. The domestic availability increased marginally by 3.7% only.
9. Transmission: The proposed target for adding new transmission lines of 220 kV, 400 kV, 500 kV HVDC and 765 kV has been set at 18,674 ckm for FY 2013-14 with 2585 ckm in the Central sector, 8938 ckm in the State sector and 2486 ckm in the Private sector. The progress in the second quarter has been lowered at 3081 ckm (69.4%) as against 4440 ckm planned.
10. In the first half of 2013-14, against the target of 6132 ckm, 5,983 ckm of transmission line was added. In terms of the sector-wise performance, the Central and State sector have done relatively well with 2,487 ckm. (183.7%) and 3,022 ckm. (93.7%) as against a target of 1354 ckm. and 3224 ckm. respectively. Private sector has been able to achieve only 474 ckm. (30.5%) against a target of 1,554 ckm.
11. RGGVY: The target of 600 unelectrified villages (UEV) and 5 lakh of BPL households for the second quarter, the actual achievement has been 199 villages and 3.1 lakh BPL households, implying that only 33% and 62% of the targets were met, respectively. The overall achievement for the first two quarters had been for 531 villages and 5.4 lakh BPL connections as against a target of 1200 villages and 8 lakh BPL connections. Overall, a total of 1,07,615 villages have been electrified so far and electricity connections have been released to 2.12 crore BPL households till September 30, 2013.
12. R-APDRP: Joint Secretary (Distribution) gave the latest status on R-APDRP wherein he stated that under Part-A (IT enabled system) projects worth INR 5233.65 Crore for 1398 towns and 70 Part-A (SCADA) projects worth INR 1574.71 Crore; 1229 Part-B projects worth INR 30,381.46 Crore have been sanctioned till September 30, 2013 under the programme. It was further stated that against the total disbursements of INR 400 Crore for the year 2013-14 under IT, the released amount for the first two quarters has been INR 297 Crore (74.25%).
13. The cumulative disbursement as on September 30, 2013 has been at INR 7017 Crore. On a query by Member (Energy), on the progress of Go-live towns, it was stated by CMD, PFC that against planned 300 centres during the FY 2013-14, the actual achievement during the first six months has been for 211 towns achieving more than 70%. The overall go-live towns are 400 at the end of September 30, 2013.
14. Financial Restructuring of State Discoms: Out of the 7 focus States (Andhra Pradesh, Haryana, Madhya Pradesh, Punjab, Rajasthan, Tamil Nadu & Uttar Pradesh), only four States Haryana, Rajasthan, Tamil Nadu and Uttar Pradesh participated in the FRP. Three State namely Tamil Nadu, Uttar Pradesh and Rajasthan have issued bonds for an amount of INR 6,800 Crore, INR 15,000 Crore and INR 15,000 Crore respectively. Haryana state is in the process of floating of bonds.
15. Andhra Pradesh State, which was earlier part of the seven states, could not join the scheme due to the defect in the reporting system of receivables in balance sheet. The State of Karnataka was not part of the focus States but has now given its willingness to join in the scheme. Bihar and Jharkhand have also expressed to join in the scheme.The cutoff date for these four states has been extended from March 31, 2012 to March 31, 2013. In this context, the Cabinet approval would be sought shortly. 

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Source: Cerebral Business Research Pvt. Ltd.

In order to reduce the gap between the demand and supply of fuel supply t power plants based on coal, a number of mechanisms have been proposed in the recent times. The situation at the end of 12th five year plan is most like likely that Coal India will not be able to demand all the commitment made in it's Fuel Supply Agreements (FSA's). To meet the shortfall in supply of domestic coal for power generation, it will be necessary to import larger volumes of coal in the years to come. During 2013-14, Coal India Limited(CIL) experts to supply only about 379 MT of domestic coal at administered prices, leaving a balance of about 100 MT to be imported at market prices.
The present arrangement compels off-coast producers to import coal while coastal producers do not substitute even a fraction of their allocation of domestic coal by imported coal. This causes wasteful transportation which adds to congestion as well as costs. An arrangement that rationalises coal prices in order to avoid dual transportation would lead to significant savings in time and costs, whereby power producers near coastal regions would be incentivised to use more of imported coal, thus releasing equivalent volumes of domestic coal for supply to off-coast power producers. On the other hand, off-coast producers would be required to pay the import parity price (IP Price) for pari of their supply of domestic coal. This can be enabled by a system of dual pricing of domestic coal which would require a pre-determined quantity of domestic coal to be supplied to every porter producer at notified prices while the balance would have to be procured either at the IP Price in case of domestic coal or at international prices in case of imports. The IP Price may be fixed by CIL at par with the landed cost of imported coal.
(Alternatively, Coal Pool Pricing, Coal Banking, Model concession Agreement are some other mechanisms that were proposed to reduce the demand supply gap if fuel to power the thermal plants based on coal.)
The proposed arrangement would

• Facilitate the much-needed import of coal
• Minimise transportation time and costs
• Allow each State to exercise choice in sourcing of coal
• Address regulatory issues of tariff-setting

Inevitability for Imports: According to the World Economic Forum's Global Competitiveness Report 2011-12, the quality of electricity supply in India is ranked at 112 out of' 142 countries. While the demand for power has been increasing in line with the growth of the Indian economy, power generation has not kept pace. In particular, the shortfall in coal production has been one of the principal causes of the continuing power shortage. As such, there is a pressing need for increasing power generation by enhancing coal supply. Being a nationalised industry. Coal India Limited (CIL) presently accounts for over 85% of the total production of coal. Since CIL can ramp up its production only at a modest pace, reliance on imported coal seems inevitable, even though it is about 40% costlier than domestic coal.
Dual Pricing of domestic coal: Dual Pricing of domestic coal would recognise the duality of coal prices and operate in a manner that ensures an equitable treatment for all regions while reducing transportation costs; and rail congestion. Under this arrangement, bulk of the supplies would continue at the notified price and the balance would be bridged either by imported coal or through domestic coal to be supplied by CIL at the import parity price (the "IP Price"). The additional revenues on account of IP Price will be distributed by CIL in (he form of a proportionate discount on the notified price, such that the system of Dual Pricing is revenue neutral for CIL and cost neutral for power producers.
Determination of Firm Commitment: As a part of this arrangement, CIL would indicate a pre-dctermined quantity of coal for firm supply to each power producer under its respective FSA (the 'Firm Commitment'). This will reflect the level below which CIL would be required to pay penalties under the FSA. Supplies beyond the Firm Commitment would have to be procured by each producer at the prevailing market price. While coastal plants would normally import coal at the international price, off-coast plants would buy from CIL at the IP Price.
Under the proposed arrangement, even the Firm Commitment would be split into two parts. While 80% of'the Finn Commitment will be supplied at the notified pricc, less a discount of about 10%, the remaining 20% of the Firm Commitment may be supplied at the IP Price. The net impact on producers would be negligible, as the additional burden cast by the IP Price will be offset by the said discount. In fact, there could be some savings due to lower transport costs.
Procurement at IP Price: Under the proposed arrangement, CIL may earmark say, 75 million tonnes of coal (out of the 379 million tonnes earmarked for the power sector in 2013-14) for sale at IP price. CIL Will also be thedefauk supplier of imported coal. Power producers would be free to determine their respective procurement of domestic supply at IP Price as well as the quantity/ agency of import. For the purposes of tariff regulation by the Electricity Regulatory Commissions, the IP Price as well as the import price declared by CIL should be eligible for a pass through treatment, subject to actuals.
Dual Pricing would be equitable for all regions and States as it does not go against their resource endowments. It is also compatible with the principles of economics in that it does not "conceal the increase in marginal costs by increasing the average costs of all.
Possible Ways to workout in the future: CIL may tlx the Firm Commitments for all power producers in accordance with the respective FSAs and leave the balance to be imported or supplied at IP Price. With a view to augmenting the overall supplies for the power sector, CIL may also divert 1.25% (5 million tonnes) from e-auction for sale at IP price. CIL may thus earmark 80 (75+5) million tonnes of domestic coal for sale at IP Price and provide a proportionate rebate on the notified price to ensure revenue neutrality for CIL and cost neutrality for power producers. CIL would be free to divert additional quantities from e-auction for supply at IP Price. The revenues generated from such additional supplies may be retained by CIL.
CIL should, with prior approval of the Coal Ministry, spell out the methodology for fixing IP Price so as to reflect the landed cost of imported coal at the nearest port. Based on this methodology, CIL would announce the IP Price and the same would also be treated as the normative import price. Power producers would be free to channelise their imports through CIL or undertake imports through other agencies, subject to the. ceiling of normative import price.
Ministry of Coal and Ministry of Power may formulate a detailed proposal for Dual Pricing. Planning Commission may coordinate, if necessary. Consultations may also be undertaken with State governments, utilities and power producers. The proposal may need Cabinet approval before it is operationaliscd. If consultations/approvals are undertaken in a timely manner, the Dual Pricing arrangement may be operationalised from September 15, 2013.
Apart from the above, it is very important not to lose sight of the fact that reliance on imported coal will increase electricity tariffs, with all its consequential effects on inflation and costs across the economy. India has sufficient coal, but issues associated with governance have caused significant barriers in increasing its production by CIL. For almost two years, there has been recognition of the fact that PPP in coal mining should be introduced quickly. This needs to be assigned a high priority.

Source: Cerebral Business Research Pvt. Ltd.