While acknowledging that power companies need to raise tariffs to absorb high coal import prices, VS Verma, member, CERC says the price transmission is a complex process and isn't a one-size-fit-all solution. He added that it is a temporary measure and if coal prices come down, there would not be any need for giving any compensatory price.
In an interview to CNBC-TV18, VS Verma, member, CERC says the pass-through mechanism, however, comes with a rider. "If the calorific value of the coal which they would import is the same as that of the indigenous coal, around 3,000-4,000 calorific value then there is not much difference in the cost of the imported coal and indigenous coal and hence it may not have any impact on the price of electricity," adds Verma.
Below is the edited transcript of Verma's interview to CNBC-TV18.
Q: How complicated would it be to implement some of these tariff hikes which power companies would seek to do now because of the high price of imported coal or even the high price of the gas if that is allowed over the next few days?
A: The problem with our power stations is that the indigenous coal supply is falling short of the requirement. The Power Purchase Agreements (PPA) which the companies have made had a provision that only the indigenous coal companies would be able to meet their 100 percent requirement of the Annual Contracted Quantity (ACQ) that is the 80 percent of the power stations, 100 percent capacity requirement. However, after the contract has been done the coal company is finding that they will not be able to supply 100 percent of their requirement and therefore there is a need to import the coal.
So, to accommodate the imported coal and in the cost of the coal which they have consumed, the government has actually made an enabling framework that would facilitate the cost of the imported coal as pass-through, provided the provisions of the PPA etc. which they do recognise that there is a change of law.
These individual cases would have to go to the respective state commissions and central commissions if it falls under the jurisdiction of central commission and these have to be decided on case-to-case basis.
In any case, if the coal company is not able to meet something like 15-20 percent of the the imported coal content requirement it would be only to that extent and it depends on what calorific value of coal you are importing and the price.
If the calorific value of the coal which they would import is the same as that of the indigenous coal, around 3,000-4,000 calorific value then there is not much difference in the cost of the imported coal and indigenous coal and hence it may not have any impact on the price of electricity.
However, in case the coal which has to be imported is of high calorific value which has a high price as well, that would affect the price of the electricity. It would depend on a case to case basis. It may not be possible to declare now what would be the impact of the coal pricing on the price of the electricity at that point of time. It would depend on case to case and how much coal is required to be imported.
Q: The problem is that State Electricity Boards (SEB) do not seem to be in a mood to understand the logic of what you are suggesting. You know well what happened with your order with the Mundra Power Plant. The Haryana SEB has dragged it to court. Committees are discussing it. So it is not as if all these tariff hike proposals or the logic of it is finding great acceptance with the SEBs. How do you think this time will be different?
A: Including our order, this needs to be discussed and deliberated. In our order we have not touched the competitive bid tariff. We said that since there is a situation that the coal prices have increased in international markets and therefore a compensatory tariff has been suggested. One has to work out what has to be the compensation and if the coal prices go down there would not be any compensation.
It is only a temporary measure. Maybe with time the coal prices come down and there would not be any need for giving any compensatory price. But you are right that the state distribution companies and the state government have to understand this mechanism.
The barrier they are thinking is that they have the competitive bid price and therefore one should not change it. Our order recognises the reality of the situation that the coal prices have increased and we suggested that a compensatory package; it is a variable type of package that if the coal prices increase, some increase has to given, if the coal prices fall down then a negative impact has to be there on that.
If the distribution companies understand our order and if it is properly deliberated then there would be a proper understanding and they would come to a value to which all agree. If they come around a consensus on this then this can be decided. It is not a difficult thing to decide it. The state governments have gone to the appellate tribunal perhaps to say that they do not lose the right of challenging this order if they find it not very acceptable to them, only to that extent.
