KOLKATA (miningweekly.com) – The Indian government has announced that private thermal power companies will be allowed to switch coal supply linkages from one coal company to another, but electricity producers are not sure that the move will deliver industry-wide benefits.

Based on recommendations of an inter-Ministerial committee, the Coal Ministry last week said in a statement that, “coal linkage rationalisation shall be an exercise in which a thermal power plant operated by a private company may be transferred from one coal company to another, based on availability during the fiscal and production the plan of the coal company”.

The ostensible aim of the linkage rationalisation is to bring down transportation costs and reduce freight movement loads for the government transporter, Indian Railways, by enabling a thermal power company to switch linkage with a distant mine and sourcing coal from a mine closer to its plant site.

Coal India Limited and power sector policy advisory body, Central Electricity Authority will oversee the linkage switch. Any company seeking a switch will have to declare a minimum order quantity.

The Ministry said that rationalisation of linkages would aim to level the playing field for independent power producers in each domain.

However, power companies are not convinced that flexibility will accrue any operational or cost benefits.

Although a switch in linkage to a closer mine will lower the transport cost of coal landing at the plant site, it has been mandated that such savings be passed on to distribution companies that have power purchase agreements with the power generating company.

According to an official at a private power company, thermal power companies could face volume and quality risks when switching to a new mine.

He said that fundamental problems were infrastructure deficiencies in transportation of coal to power plants, a shortage of wagons offered by Indian Railways, and congestion of railways tracks, hence switching of coal linkages would only be a palliative for select thermal power plants and not an industry-wide solution.

Meanwhile, since early this month, several coastal thermal power plants have started concluding contracts for imported coal, which indicated that the 22% fall in coal imports during April 2018, at 3.73-million tons compared with the corresponding month of the previous year, was poised for a reversal.

Though details of import contracts were not readily available, government officials said that thermal power plants in the coastal provinces of Andhra Pradesh and Tamil Nadu were the first movers in the current fiscal to have signed up import contracts.