Private power producers need a 'powerful' push - Essar | Creating Value

Private power producers need a ‘powerful’ push

Electrical & Power Info

May 8th, 2018

  • PLF of the Private Sector in the country (Coal and Lignite based) for FY 2017-18 (till Dec 2017) is 56%.
  • 51 GW of stressed assets (Thermal & gas) and around 23 GW of capacity under construction projects are likely to be stressed due to non-availability of Coal and lack of PPA’s.
  • Of total 495 MT of coal supplied by CIL and its Subsidiary, Private sector received around 133 MT of coal for FY 2017-18 (Till Feb 2018).
  • Post-GST private power producers witnessed an increase of nearly Rs 135/tonne on Imported Coal.
  • Private players have to bear an increase of 12-15 paisa/Kwh post GST implementation in July 2017 and revised coal price notification by CIL (domestic coal) in Jan 2018.
  • Non-availability of Long term fuel security (coal linkage or coal blocks), adequate long term PPA tenders by Discoms continues to hamper private power producers.
  • Additional Capex requirement for meeting the revised environmental norms issued by MoEF

India is a power surplus country, really? Isn’t it an illusion? The poor health of State discoms compels them to buy less electricity. And ofcourse, load-shedding continues to torment the discoms. Nearly, 300 million people are expected to get electricity under the government’s ambitious `Power for All’ initiative. Inadequate infrastructure for power transmission is believed to be the primary reason for the aforementioned number is deprived of electricity. The tag of Power Surplus Country — is it something really to cherish?

Imbalanced coal supply: Public Vs private power producers

Insufficient coal supply to thermal power plants is taking a huge toll on electricity generation. According to Coal Ministry data, of total 495 million tonne (MT), Coal India Ltd (CIL) has supplied 362 MT (accounting for 73%) to public sector thermal power plants from April 2017 to February 2018. On the other hand, private thermal power plants received 133 MT during these ten months, which accounts for 27% of total coal supplied to IPP’s. The supply of thermal grade coal (G11 to G12) is likely to remain in the same proportion in coming years. Moreover, the recent coal price hike will translate to 12-15 paisa/kWh and is a major setback to the IPP’s as most of the Case-1 competitive bidding PPAs do not allow pass through of increase in coal price to producers, whereas for public power plants the PPA’s are signed under Section-62 which allows the pass through of increased coal cost. As the IPP’s are already hit by increasing operating costs, private power producers badly need optimum coal supply with a slash in current coal prices. Further, Inadequate coal supply forces the private power plants to opt for imported coal where the current duty structure puts them on a receiving end.

 Duty structure for Imported Thermal coal -a dampener

In the wake of the insufficient coal availability, imported thermal coal remains the only way out to meet the rising fuel demand for power generation. However, the duty structure for thermal coal only adds to increase in imported thermal coal prices. Pre-GST private power producers were paying Rs 515/tones on an assessable value of Rs 5000/tone, which includes CVD of 2% of assessable value; a green energy cess of Rs 400/tonne, and education cess of 3% on total duty component. Post-GST, power producers have to pay IGST of 5% of assessable value and GST compensation cess to the tune of Rs 400 /tonne, which makes the total payment to Rs. 650/tonne. us, power producers face an increase of Rs.135/tonne which is translated to approximately 9 paisa/ kWh. is additional amount is claimed under Change of Law, but regulatory delays force power producers to bear the brunt of duty structure.

In the case of thermal coal imported from other countries like South Africa, Australia, Columbia, etc. only basic duty has been abolished from 2.5% in pre-GST era, while other components such as CVD, green energy cess and education cess are combined under IGST of 5% of total assessable value. us, private power producers have to pay extra Rs. 131/tones on thermal coal imported from abovementioned countries, which is translated to —9 paisa/kWh.

It is also pertinent to note that the green cess has increased to Rs. 400/tonne from Rs. 50/tonne over the years. Unfortunately, power tariffs have not come across the same trend.

 Coal price hike adding to private power producers’ woes

The private power plant operators are already facing acute problem of coal supply and an increase of nearly 11% in thermal grade coal (G-11) has further marred the operating cost. Between May-2016 and January-2018, price of G-11 grade thermal coal has gone up by 11% to Rs 1,849/tones, which is likely to translate to 12-15 paisa/kWh in power cost.

The nature of signed PPAs under competitive bidding with state discoms does not allow the private power producers to claim any change in coal prices by CIL under Change in Law. And eventually, power generators have to bear the extra burden. On the contrary, power PSUs have a cost plus PPA with discoms and they enjoy the benefit of passing on the impact of coal price hike to discoms and thereafter to consumers.

 Sluggish coal supply and absence of linkages likely to lead to more NPAs

According to estimates, NPAs in the power sector is anticipated to be around Rs. 4 lakh crore. Due to non-availability of coal and linkages many power plants were forced to shut and turned into stressed assets. Further, the lenders have also stopped funding which were already taken at higher interest rates. Government’s initiatives for providing adequate coal and long term fuel linkages have not fetched positive results which led the private power producers surrendering prices. e government aims to add 47 GW of coal-fired capacity by 2022. However, at this juncture, no private power producer will come up with fresh investment unless and until the current issues are resolved. If the private power producers receive a substantial capital push along with revised framework for coal supply and coal linkages, at least unfinished power projects can see the light of day.

Article by Mr. Pradeep Mittal Executive Vice Chairman, Essar Power Ltd.

Source : Electrical & Power Info, April-May 2018