Coal Blocks may be Offered to Power Cos at a Discount

NEW DELHI

The government has decided to give a discount on price of coal blocks being offered to power companies in the auction set to begin in a few months, coal secretary SK Srivastava said.

 

The coal ministry is, however, yet to decide the rate at which discounts will be offered and is holding consultations with state governments that will get the entire auction money. Srivastava said the decision has been taken to ensure low electricity tariffs and all stakeholders, including state governments, have agreed to it.

 

 

“It has been decided to give a discount to power sector companies or else the auction will result in higher electricity tariffs,” he said. “The question is how much discount should be offered. State governments have also been involved in the exercise since there should be a balance between state revenues and power tariffs,” Srivastava added.

 

 

Blocks earmarked for power sector will be given to states, which will award the mines to companies that quote the lowest tariff for electricity supply. Power companies will pay a ‘reserve price’ for each block on which the coal ministry plans to give a discount.

 

 

The decision to give discount to power firms follows a recommendation made by Crisil Infrastructure Advisory, a consulting firm, appointed to assist the ministry in fixing prices of captive coal mines.

 

The consultant has recommended that price for each block be determined by estimating future cash flow projections of a project. It has suggested that the estimated cash flow should be adjusted against the estimated capital cost to mine the block over a 30-year life period to arrive at its value.

 

“India’s power needs are rapidly rising,” Crisil had said in its draft report on the methodology for calculation of price tags of coal blocks. “In 2011-12, the peak load demand-supply deficit stood at 10.6%. As any increase in electricity prices may have a cascading inflationary impact on India’s economy, the government has to keep prices at an affordable level,” it said.

 

Source: Economic Times