New Delhi | Apr 24, 2015: The Union ministry of power has told the Central Electricity Regulatory Commission (CERC) to ensure the rates for power produced from auctioned coal blocks won by power producers do not exceed what was concluded in power purchase agreements (PPAs).

"The revision of rate undertaken by the CERC shall not lead to higher energy (fuel) charges and total rate throughout the tenure of the PPAs," said the power ministry's directive to the CERC.

The directive restricts higher energy charge by coal block winners. This is likely to hit power companies, which could have recovered the coal cost by showing higher costs in other components of energy charges. Industry calculations reveal for every six million tonnes of coal production, the payout by companies allotted coal blocks for power generation will be Rs 1,500 crore each year.

The power ministry has asked the CERC to review the energy components of the rate, which comprise of the price of coal according to the auction amount, transportation cost, washery and crushing charges, royalty and duties, and levies.

For coal transportation, the rates should not exceed the benchmark rates of Coal India Ltd. Other factors in the rate need to abide by the Standard Bidding Document for the coal auction, which disallows any passthrough on the final rate. It also necessitates the mine winner to submit details of its fixed cost and final charge on the basis of the bid.

A rough calculation by the ministry of coal says for every negative bid of Rs 100 a tonne, there will be a six paise reduction in the power rate.

For the capacity addition already contracted under a PPA, the allocation of a coal block to a certain power plant will be treated as 'change of law'. "This will allow revision of the rate downward, in accordance with provisions of PPAs," said the directive.

The ministry of coal in its first ever e-auction of 40 coal mines allotted 11 of these to power producers. All the bidders for these blocks had bid negative, with the final bid remaining below zero. This has to be discounted in the final power rate, where the cost of fuel is taken as zero.

(Source: http://www.business-standard.com/)