India’s Reverse Auction for Coal Has Done Little for Consumers, a Lot for Private Power Players

While private power companies may have walked away with savings of more than Rs 50,000 crore in the last September auction, they offered only token tariff concessions ranging from 1 to 4 paise per unit.

Railway minister Piyush Goyal. Credit: PTI

Piyush Goyal. Credit: PTI

New Delhi: Following judicial intervention in 2G and captive coal block allocations during the UPA regime, it was decided that all natural resources should be auctioned to ensure transparency and fairness in allocation.

When coal minister Piyush Goyal introduced reverse bidding in the allocation of coal blocks and linkage – where the bidder who promises to charge least from the consumer wins the block – it was with the stated aim of ensuring that consumers get the benefit of low coal prices.

For example, in a press conference in mid-2017, Goyal said that Shakti (Scheme for Harnessing and Allocating Koyala Transparently in India) would be a transformational policy for auction and allotment of coal linkages, and will lead to affordable power, access to coal and accountability in the allocation of coal.

However, reverse auction may not have lived up to those promises. For example, while private power producers have benefited immensely from allocation of coal through reverse auction held under the Shakti scheme recently, electricity consumers have been fobbed off with token tariff concessions.

Under the much-hyped policy, Coal India (CIL) has allocated long-term linkage of over 27 million tonnes of coal to ten private power plants following an auction conducted last September. Bidders have made token concessions by offering to reduce current electricity tariff by 1-4 paise. But in return, they have got assured coal supply of over 27 million tonnes per annum for 25 years at CIL’s notified price, which is about Rs 726 per tonne cheaper compared to the price they pay for the spot e-auction coal currently being used by these companies to fire their plants.

Also read: Private Players Cry Foul as Coal India Steps up Supply to State-Owned Plants

According to the latest monthly summary report submitted by the PSU to the cabinet, during April-December last year, CIL sold as much as 41 million tonnes of coal at a 66% premium over its notified prices for different grades of the fuel. If we take price of G9 coal as benchmark for CIL spot coal auction, allocation of 27 million coal under the Shakti scheme translates into a roughly windfall gain of nearly Rs 50,000 crore to ten private allocatees over the 25-year period.

Coal grade numbers are inversely proportional to their energy content. Highest grade on offer under Shakti was G4 (Rs 3,000 per tonne) and the lowest grade was G13 (Rs 720 per tonne). We have taken C9 grade as a reference for the convenience of calculation of undue gain to private companies, which might well be an underestimate.

Based on these calculations, power plants should be able to bring down their generation costs by over 50 paise a unit, far higher than the concession of 1-4 paise that they have made. Credit: PTI

We can look at it another way. A Rs 100 per tonne increase in the CIL coal price entails a 7 paise jump in generation costs for a power plant. Based on these calculations, power plants should be able to bring down their generation costs by over 50 paise a unit, far higher than the concession of 1-4 paise that they have made.

Under the scheme, approved by the Union cabinet in May last year, private power producers with commissioned power plants (but without commitment of coal supply from CIL) could participate in e-auction.

The auction was held in September 2017 for allocation of over 27 million tonne per annum of coal linkage. Adani Power companies managed to secure more than slightly more than a third of the total coal auctioned by CIL by quoting a discount of 1-3 paise a unit to the existing tariffs.

Others in the race were GMR Kamlanga Energy, GVK Power, Inland Power, Lalitpur Power, ACB India, KSK Mahanadi Power and Sai Lilagar Power.

Adani Power Maharashtra and Adani Power Rajasthan together secured supply of 9.9 million tonnes of coal. The grade they have been allocated range from G6 and G13. Coal will be supplied to the Adani power plants from South Eastern Coalfields’ (SECL) Korba, Mand Raigarh, and Korea Rewa mines, Mahanadi Coalfields’ Ib Valley, Basundhara and Talcher mines as well as from Western Coalfields and Northern Coalfields.

Also read: As Coal Shortage Hits Indian Power Plants, Ministry Starts Micromanaging Allocation

KSK Mahanadi Power has managed to bag the second largest volume of coal at 6.8 million tonnes from four mine sources. It offered a discount of 4 paise per unit for 4.5 million tonne of G12 grade that would be sourced from SECL’s Korba and Mand Raigarh mines. It also managed to secure supplies of 2.3 million tonnes at discounts of 2 paise per unit for a mix of G6 and G13 grade of coal from SECL’s Korea Rewa mines and Mahanadi Coalfield’s Ib Valley and Basundhara mines.

The third largest allocation was made to Lalitpur Power Generation Company, which managed to secure 5.6 million tonnes of coal from SECL (Korea Rewa), NCL, Central Coalfields, MCL (Talcher, Ib Valley and Basundhara mines) and ECL by offering discounts of 4 paise per unit, 3 paise per unit and 1 paise per unit for grades of coal that ranged between G4 and G13.

Among others, GMR Kamlanga Energy secured 1.5 million tonnes of coal while GVK Power bagged 1.7 million tonne. ACB India managed to secure 200,000 tonnes of coal a year, Inland Power secured 67,400 tonnes while Sai Lilagar Power Generation bagged supply of 376,200 tonnes of coal.

In 2012, the-then Comptroller and Auditor General (CAG) Vinod Rai had estimated notional loss of Rs 1.76 lakh crore and Rs 1.86 lakh crore to the exchequer from 2G spectrum and captive coal block allocation to private players. The Bharatiya Janata Party, then in opposition, accepted Rai’s notional loss theory to attack the UPA government in and outside parliament. These figures stuck in the mind of the public mainly  because they came from CAG’s audit reports.

Riding on public anger against the UPA, the BJP-led NDA alliance stormed into power in 2014 general elections. Rai had retired in May 2013 as CAG. Since then, he has assumed other quasi-government positions such as becoming the chairman of the newly-created Banks Board Bureau in February 2016.

Rai’s notional loss theory came back into limelight again last month when a special CBI court acquitted all the 2G accused including the-then telecom minister A Raja.

While BJP benefited immensely from Rai’s notional loss theory , the judicial fall-out nearly stalled the economy, with the Supreme Court cancelling all allocations of 2G spectrum and coal blocks.