KOLKATA (miningweekly.com) – The Indian government is proposing changes to its coal allocation policy to ensure that consumers benefit from lower electricity tariffs.

According to a senior official in the Coal Ministry, the government’s long-term objective was to shift from the current negotiated fuel supply agreements (FSAs) between thermal power companies and Coal India Limited (CIL) to a reverse methodology of e-auctions, in terms of which the utility that offered the lowest electricity tariff would stand the best chance of securing long-term supply contracts with CIL.

On a trial basis, new thermal generation capacity of about 10 000 MW, completed or near-completion, but stranded for want of fuel supplies, would be brought under a new dispensation, the official said.

In the second phase, all thermal power plants having commenced operations after 2009 would be brought under the electricity tariff-based reverse auction of coal allocation on expiry of their existing FSAs, he added.

Eventually, all thermal power companies in the country would be brought under the new coal allocation system.

A draft of the allocation policy had been put out for circulation among all stakeholders, including a proposal that fuel supply reverse auctions would be held once every 20 years, although this was subject to change, depending on the feedback received from thermal power companies, the official said.

Sources in the ministry pointed out that the government was keen to push thermal power companies to pass the benefits of lower domestic coal costs on to electricity consumers.

The success of the new allocation policy would, however, hinge on maintaining the differential between domestic coal prices and the higher landed price of imported coal.

For this, the Coal Ministry would have to do a delicate balancing act, having already announced that it would go ahead with rationalisation of domestic coal prices at a time when international coal prices were moving southwards.

The ministry had started work on aligning domestic coal prices based on their gross calorific value and eliminating current price disparity based on useful heat value of coal across grades.

However, in a statement issued last week, Coal Minister Piyush Goyal said that Indian coal prices were never benchmarked to international prices and that rationalisation would not align it with international prices.

It was still not clear as to how a price differential between domestic and imported coal would be maintained in falling international market conditions, which would incentivise thermal power companies to aggressively price electricity tariffs and secure domestic coal supplies.