Indian cabinet approves new coal linkage policy, pushes nuclear power plants
May 17, 2017 | 9:30 PM
by Hindustan Times Syndicate
Power Minister Piyush Goyal briefs the media after a Cabinet meeting in New Delhi on Wednesday. Photo - PTI

New Delhi: The Union cabinet on Wednesday approved a transparent mechanism for coal supplies and tweaked India's energy mix with a renewed focus on nuclear power generation.

In sync with the National Democratic Alliance government's template for ensuring transparency in natural resources allocation, the Cabinet Committee on Economic Affairs (CCEA) ensured coal supplies to stranded power projects and approved allocation of such linkages through an auction process.

Linkages are awarded to projects that do not have captive coal mines and need to source coal commercially from state-owned Coal India Ltd (CIL). At a meeting chaired by Prime Minister Narendra Modi, the union cabinet also approved the addition of 7,000 megawatt (MW) of nuclear capacity that can potentially generate up to Rs70 billion of orders for domestic industry.

Of India's power generation capacity of 326,848.53 MW, two-third or 217,492.26 MW is fuelled by coal, with renewable accounting for 57,260.23 MW. Nuclear accounts for only 6780 MW.

India will construct 10 indigenous units of pressurised heavy water reactors (PHWRs), each with a capacity of 700 MW, in a "fully homegrown initiative," government said in a statement.

It would be one of the flagship projects under the 'Make in India' initiative. This comes in the backdrop of measures taken by the NDA government to encourage the generation of clean power, including wind and solar energy, under its commitment to reducing carbon emissions.

"Allocation of linkages for power sector shall be based on auction of linkages or through Power Purchase Agreement (PPA) based on competitive bidding of tariffs except for the State and the Central Power Generating companies and the exceptions provided in Tariff Policy, 2016. Coal drawal will be permitted against valid Long Term PPAs and to be concluded Medium Term PPAs," the government said in a separate statement.

The plan for these coal linkages, through which projects get assured supply of the fuel at a discounted price has been in the works for some time now and comes in the backdrop of enough coal being mined in the country. "Coal linkages, for IPPs having PPA based on imported coal, shall be made available through a transparent bidding process," the statement added.

Earlier the process of selecting companies that were assured coal supply was as subjective as the process for allotting captive coal blocks which was changed by the NDA government which introduced coal mine auctions after the Supreme Court in September 2014 scrapped more than 200 coal field allotments after finding them to be illegal.

"When the Supreme Court cancelled coal blocks in 2014, it was decided that the wealth should be distributed fairly and on that basis the coal blocks were auctioned and the profits were to be directed towards development and upliftment of the poor," power, coal, mines and renewable energy minister Piyush Goyal said while briefing reporters.

Experts welcomed the move. "This policy brings policy certainty, openness and transparency in manner of supply from Coal India to different categories of users," said Debasish Mishra, partner at Deloitte Touche Tohmatsu India LLP.

"A key provision of the policy is also to have auction for existing PPA holders based on discount to already prevailing tariff, which had built up huge risk premiums due to uncertainty around coal supply in the past. This would directly benefit to the electricity consumers," added Mishra.

"Market orientation of coal pricing in domestic market has been a long overdue reform. In the past this had led to distortions such as higher demand in a supply constrained market. Pricing through auctions has been proposed a while ago with initial application for non-regulated sector. Reform in coal pricing to be effective has to apply on power sector that is the largest consumer of coal," said Dipesh Dipu, partner at energy-focused Jenissi Management Consultants.

"One of the biggest beneficiary of the policy will be projects with imported coal based PPAs. This will provide an opportunity for them to migrate to domestic coal thereby reducing their exposure to price vagaries of imported coal," added Abhishek Poddar, a partner at consulting firm A.T. Kearney Ltd.

The cabinet also approved a maternity benefit programme announced by the Prime Minister in his address to the nation on New Year's Eve under which all pregnant and lactating mothers across India will get a financial assistance of Rs6,000.

The government estimates the programme will cost Rs12,661 crore (between January 2017 and March 2020) of which the centre will spend Rs79.32 billion. "The scheme intends to provide support to the mother for safe delivery and immunisation of her first child," said an official statement.

Further, the cabinet approved a Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS). The convention is the outcome of an OECD project to check tax evasion through the exploitation of gaps in tax rules of different countries. The cabinet approved an amendment to the Public Premises (Eviction of Unauthorised Occupants) Act, 1971, which will allow easier eviction of occupants of government premises beyond their official tenures.

In another decision, the cabinet approved the setting up of an Indian Agriculture Research Institute campus in Assam at an estimated cost of Rs1.5 billion. The institute will work towards resolving the agrarian challenges and complexities of north-eastern India in coordination with all existing central and state government institutions.

The government also approved two railway projects, in Uttar Pradesh and Maharshtra, which will involve the construction of new lines and electrification of existing routes. The cabinet cleared a restructuring package for Hindustan Organic Chemicals Ltd, a loss making public sector unit, which involves shutting down non-viable operations.

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