CCEA allows power producers to raise prices to match cost of imported coal

The Cabinet Committee on Economic Affairs (CCEA) has permitted the power producing companies to increase electricity prices to match the increase in cost of imported coal, a step that will benefit 78,000 mw of existing and upcoming plants of producers such as Reliance Power, Tata Power, Adani Power and Lanco Infratech. As per experts this move would hike power tariff by up to 20 paise, but it would help the sector fully utilize idling capacity and repay loans to banks.
Coal India has been asked to supply 65% of power projects’ requirement from domestic mines. CIL will offer another 15% through imports on a cost-plus basis to willing power producers. Domestic coal supply would go up to 75% by 2016-17.
Why this decision?
Most of the power producing plants in India are operating at 50% capacity due to lack of fuel and if these are powered by imported coal then it makes the electricity costlier, and most existing contracts do not provide for cost pass-through. But, with this decision, allowing the companies to pass-through the import cost by raising electricity prices will ease the burden and will ensure adequate coal supply to power plants.
However, the poor financial health of state power distribution utilities, which have 1,90,000 crore of accumulated losses, might still pose a problem. State utilities often resort to power cuts to avoid buying costly electricity.

Month: Current Affairs - June, 2013