In his summary assessment report to Prime Minister Manmohan Singh on the power sector issues, which require immediate attention, Mr. Ahluwalia has stated that power plants now under implementation based on imported coal have run into problems because the international coal prices have risen sharply and this aspect was not taken into account when the promoters submitted their tariff bids for the electricity they would supply. "In one case, the power producer has purchased a coal mine in Indonesia for assured supplies, but the Indonesian government has decided to charge royalty on the basis of much higher international prices and levy tax on profit computed by pricing the coal on international prices. Unless the power tariffs are revised to reflect higher international coal prices, these plants will not be viable,'' Mr. Ahluwalia states.
The Planning Commission Deputy Chairman further states that there is no easy solution to this problem since the electricity tariff is locked in under the power purchase agreements. "Logically, the power producers should bear some of the burden of higher coal prices and the balance may have to be folded into a higher tariff. However, any such action will be seen as favouring a particular private party. The Ministry of Power should consider whether there are acceptable ways of solving this problem,'' he states.
The standard Power Purchase Agreement (PPA) for projects such as the UMPPs excludes fuel from the force majeure provisions. Fuel, instead, is mentioned under Clause (a) of Article 12.4 of the PPA that lists out the ‘Force Majeure Exclusions'. Besides, the ‘Non-natural Force Majeure events' specified in the PPA does not include actions by a foreign government. Article 14 of the PPA, which deals with the termination of contract on account of default by the power seller (in this case CAPL), lists out the "abandonment by the seller or the seller's construction contractors... for a continuous period of two months" as a condition for triggering the clause, provided if "such a default is not rectified within 30 days from the receipt of first notice from any of the procurer or procurers".
On another contentious issue, Mr. Ahluwalia feels that Coal India should examine the issue of reconsidering the nationalisation policy of coal mining and allow private coal mining. Even if it means amending the Act, it should be done. "We need to incentivise domestic coal supplies as much as possible. In the Approach Paper to the XII Plan, we have said that the nationalisation of coal should be re-considered to allow private coal mining. An intermediate solution is to allow captive coal mines to sell at least a part of their output in the open market (this is not allowed at present) but what this means is that we may be forced to import coal, while domestic captive mines will not be allowed to meet the domestic coal demand.''
On introducing ‘open access' in the power sector, Mr. Ahluwalia states that it is an essential long-term reform in the operationalisation of "open access whereby generators of power can sell directly to high-tension consumers while paying the distribution company a wheeling charge plus a ‘cross-subsidy surcharge' to cover the fact that tariffs on high-tension consumers have a built-in element of cross-subsidy. The main advantage of open access, he states, is that high-tension consumers will be able to tie up reliable supply from independent power producers, while paying the cross-subsidy to discoms. In other words, the financial weakness of the discoms, because of political interference, need not jeopardise supply to industry/commerce.