Import lobby and imported coal - a tale of two Fridays

It might be unique co-incidence, but the tale of last two Fridays clearly encapsulates the most challenging parts of India's energy story.  

On 14th June, petroleum minister Veerappa Moily stunned journalists by saying that oil and gas import lobby regularly threatens the Indian petroleum minister and does not want country to develop its natural resources, especially petroleum. Moily wants the country to increase oil and gas production capacity and feels importers do not want to see this happen.

One Friday later (21st June), it was turn of the Cabinet Committee on Economic Affairs, to begin addressing the problem of input shortage for India's power sector. Over the years, India's state-owned coal producer Coal India, which has a near monopoly, failed to extract adequate coal, and country had to look for imported coal options.

After the Friday's meeting of Cabinet Committee on Economic Affairs, what's obvious is that consumers will now have to foot the bill for inefficiencies in India's economic management of its power sector.

The decision brought cheer to the lobby of the power producers, who are fighting at several forums, seeking compensation for the volatility in the price of coal globally.

Initially, when these power plants were envisaged, power producers thought they would benefit with assured supplies and cheaper rates of coal in some in some markets such as Indonesia, where at that time coal was cheaper. The situation changed when that country also linked the price with the prevailing international prices. Since 2008, roughly 80,000 MW power capacity did not materialize as there was no clarity on how the erratic price of coal globally would be passed through.

This Cabinet decision has brightened hopes for addition the stranded 80,000 MW capacity, where state-promoted Coal India would commit the fuel supply agreement. The rider is that these pass-through would have to be vetted by the Central Electricity Regulatory Commission, or CERC, from time to time, and on case-to-case basis. Today, in India various power plants are either being shelved or were forced to run at much below capacity because of these prices.

On the other hand the industry lobby, largely represented by the generators and fuel suppliers, are happy with this decision. Industry lobby house FICCI's former president RV Kanoria called it a step in right direction. This decision will impact tariff from 15 paisa to 45 paisa a unit across the country.

However, this decision may not find favour with the distribution companies, who feel that their interests were not considered. Their logic is that since many of these distribution companies are not in good financial condition it would not be feasible for them to buy expensive power. This year, six big states in the country are going for assembly elections, followed by general elections due in May next year. It would be difficult for the distribution companies to increase the tariff again, especially in mid-financial year.