Lok Sabha Question No. 221 (STARRED), answered on 2018-01-03
Subject: New Coal Allocation Policy
Ministry: COAL
Asked by: SHIVAJI ADHALRAO PATIL, PRITAM GOPINATH MUNDE

## GOVERNMENT OF INDIA MINISTRY OF COAL LOK SABHA STARRED QUESTION NO.221 TO BE ANSWERED ON 03.01.2018

## New Coal Allocation Policy

## *221. SHRI ADHALRAO PATIL SHIVAJIRAO: DR. PRITAM GOPINATH MUNDE:

## Will the Minister of COAL be pleased to state:

- a. whether the Government has implemented/introduced new coal allocation policy-2017 for the power sector and if so, the details and the objectives thereof;
- b. whether availability of domestic coal in the power plants has improved in the country during the last two years and if so, the extent to which it has improved;
- c. whether the Government has decided/planned/started to substitute imported coal with domestic coal;
- d. if so, the details thereof and the initiatives taken by the Government/Coal India Limited (CIL)  in  this  regard  during  the  last  one  year  and  the  success  achieved  as  a  result thereof; and
- e. whether CIL has started supplying domestic coal against the requirement of imported coal for power plants and if so, the details thereof?

## ANSWER

MINISTER OF RAILWAYS AND COAL (SHRI PIYUSH GOYAL )

A statement is laid on the table of the House.

## Statement referred to in reply to parts (a) to (e) of Lok Sabha Starred Question No. 221  for  answer  on  03.01.2018  asked  by  Shri  Adhalrao  Patil  Shivajirao  and  Dr. Pritam Gopinath Munde.

(a): Yes Madam.  Ministry of Coal vide letter No. 23011/15/2016-CPD/CLD  dated 22.05.2017  has  issued  a  new  and  more  Transparent  Coal  Allocation  Policy  for  Power Sector, 2017 - 'SHAKTI' (Scheme for Harnessing and Allocating Koyala (Coal) Transparently in India). A copy of the policy guidelines dated 22.05.2017 is attached with the answer.  The main objectives of this policy are to make coal available to all the Thermal Power Plants of the country in a transparent and objective manner and at the same time ensure that the benefits of linkage coal are transferred to the end consumers.

The main features of this policy are:

1.  FSA  to  be  signed  with  the  existing  LoA  holders  after   ensuring   that  plants  are commissioned,  respective  milestones  met,  all  specified  conditions  of  LoA  fulfilled  within specified timeframe, and nothing adverse is detected against the LoA holders,

2. To continue to supply coal to 68,000 MW capacity as per the decision of CCEA dated 21.06.2013  @75%  of  ACQ.  The  supply  may  be  increased  in  future  based  on  coal availability,

3.  Actual  coal  supply  allowed  also  under  medium  term  PPAs  to  be  concluded  in  future besides long term PPAs,
4. The pending applications for LoA need not be considered and may be closed.

5. Linkages may also be granted at the notified price to State/Central Gencos/their JVs.

6. Coal linkages to power producers/IPPs having already concluded long term PPAs based on domestic coal to be given on notified price to successful bidders. The basis of the bid being non-zero levellised value of discount on the tariff. The discount in tariff so quoted has to  be  passed  on  to  the  procurer,  through  a  supplementary  agreement  between  the developer  and  the  procurer  to  be  approved/adopted  by  the  appropriate  Regulatory Commission.
7. Coal linkages may also be earmarked for fresh PPAs, by pre-declaring the availability of coal  linkage  with  description,  to  the  States/Discoms  which  may  undertake  tariff  based competitive bidding for long-term and medium-term procurement of power and recommend grant  of  these  linkages  to  successful  bidders.   Similarly,  power  requirement  of  group  of States can be aggregated and successful bidder in tariff based competitive bidding may be recommended grant of earmarked linkage.
8. Linkages shall be granted for full normative quantity to Special Purpose Vehicle (SPV) of Ultra  Mega  Power  Projects  under  Central  Government  initiative  through  tariff  based competitive
9. Linkages to IPPs having PPA based on imported coal but without linkage shall be on the basis of a transparent auction mechanism.

10. Future coal linkage on auction basis for IPPs without PPAs that are either commissioned or to be commissioned.

| Year               |   Receipt of domestic coal at power plants (in MT) | Increase in receipt of domestic coal as compared to last year (in %)   |
|--------------------|----------------------------------------------------|------------------------------------------------------------------------|
| 2013-14            |                                              418.1 |                                                                        |
| 2014-15            |                                              450.3 | 7.70                                                                   |
| 2015-16            |                                              481.3 | 6.88                                                                   |
| 2016-17            |                                              494.9 | 2.82                                                                   |
| 2017-18 (Apr- Nov) |                                              342.7 | 9.5 *                                                                  |

*  In  2017-18  (April-Nov,  2017),  the  receipt  has  been  342.7  MT  against  312.9  MT  in  the corresponding period of the last year, which is a growth of 9.5%.

(c)  to  (e) :  As  per  the  current  import  policy,  coal  is  kept  under  Open  General  License (OGL) and consumers are free to import coal from the source of their choice as per their contractual prices on payment of applicable duty. In view of the buoyant production and adequate availability of domestic coal, it has been an endeavor to reduce the import of coal by power plants and to substitute it with domestic coal supply.  In this  regard, Coal India Limited (CIL) has taken the following steps for promotion of substituting imported coal with indigenous coal

- i. Rationalization  of  sources  by  part  of  coal  supply  coming  from  sources  of  higher grade coal,
- ii. Offer  of  coal  from  various  sources  including  higher  grades  were  offered  through various  types  of e Auction  schemes  including  Special  Forward e Auction  for  Power Sector
- iii. Taking initiatives like flexible tenure of coal lifting,  reductions  of EMD and of floor price in coal auction for power sector,
- iv. Sanction of coal linkages under SHAKTI policy.

As reported  by  CEA,  there  has  been  reduction  of  coal  import  by  domestic  coal  based power plants from 37.2 MT in 2015-16 to 19.9 MT in 2016-17. In 2017-18 (till 30.11.2017), import by such power plants has been 11.07 MT against 14.53 MT during the same period in 2016-17. The coal import by imported coal based plants in 2017-18 (till 30.11.2017) has been  27.7  MT  as  against  30.3  MT  during  the  same  period  in  the  last  year,  recording  a reduction of 2.6 MT. CIL has offered domestic coal for substitution of import to many power plants within and above the Annual Contracted Quantity (ACQ). TANGEDCO, NTECL, Vallur and NTPL Tuticorin have already executed side agreements with Eastern Coalfields Limited (a subsidiary company of CIL) for supply on best effort basis of 2.5 MT, 1.0 MT and 1.0 MT coal respectively, over and above ACQ as import substitution.

However, the gap between demand and supply of coal cannot be bridged completely as there  is  insufficient  domestic  availability  of  coking  coal  and  power  plants  designed  on imported coal will continue to import coal for their production.

*****

To

- (i) Chairman-cum-Managing Director, Coal India Limited, Coal Bhawan, New Town, Rajarhat, Kolkata-700156.
- (ii) Chairman-cum-Managing Director, SCCL, PB No. 18, Khairatabad, Hyderabad, Telangana.

Subject: Signing of Fuel Supply Agreement (FSA) with Letter of Assurance (LoA) holders  of  Thermal  Power Plants-  Fading  Away  of  the  existing  LoA-FSA  Regime and  Introduction  of  a  New  More  Transparent  Coal  Allocation  Policy  for  Power Sector,  2017-  SHAKTI  (Scheme  for  Harnessing  and  Allocating  Koyala  (Coal) Transparently in India).

Sir,

The proposal of Coal linkages Allocation Policy for Power Sector has been under examination in this Ministry. With the approval of Cabinet Committee on Economic Affairs (CCEA), the following policy guidelines for allocation of Coal linkages to Power Sector have been decided:

- (A) Under the old regime of LoA-FSA:
- i. FSA may be signed with the pending LoA holders after ensuring that the plants are commissioned, respective milestones met, all specified conditions of the LoA fulfilled within  specified  timeframe  and  where  nothing  adverse  is  detected  against  the  LoA holders.  The  outer  time  limit  within  which  the  power  plant  of  LoA  holders  must  be commissioned  for  consideration  of  FSA  shall  be  31.03.2022,  failing  which  LoA  would stand  cancelled.  Coal  supply  to  these  capacities  may  be  at  75%  of  ACCT.  The  coal supply to these capacities may be increased in future based on coal availability.
- ii. The 583 pending applications for LoA need not be considered and may be closed.
- iii. The  capacities  totaling  about  68,000  MW  as  per  the  decision  of  CCEA  dated 21.06.2013 would continue to get coal at 75% of ACQ even beyond 31.03.2017. The coal supply to these capacities may be increased in future based on coal availability.
- iv. About 19,000 MW capacities out of the 68,000 MW could not be commissioned by 31.03.2015. Coal supply to these capacities may be allowed at 75% of ACQ against FSA provided  these  plants  are  commissioned  within  31.03.2022.  The  coal  supply  to  these capacities may be increased in future based on coal availability.
- v. Actual coal supply to power plants shall be to the extent of long-term PPAs with DISCOM/State Designated Agencies (SDAs) and medium term PPAs to be concluded in

## No. 23011/15/2016-CPD/CLD Government of India Ministry of Coal

Shastri Bhawan, New Delhi, the 22" May, 2017

## IMMEDIATE

future against bids to be invited by DISCOMs as per bidding guidelines issued by Ministry of Power.

With these, the old regime of LoA-FSA would come to finality and fade away.

(B)  The  following  shall  be  considered  under  a  New  More  Transparent  Coal  Allocation Policy  for  Power  Sector,  2017-SHAKTI  (Scheme for  Harnessing and Allocating  Koyala (Coal) Transparently in India):

(i)  CIL/SCCL  may  grant  Coal  linkages  for  Central  Government  and  State  Government Gencos at the notified price of CIL/SCCL. Similarly, coal linkages may be granted for JVs formed between or within CPSUs and State Govt./PSUs. The recommendations shall be made by Ministry of Power.

(ii)  CIL/SCCL  may  grant  coal  linkages  on  notified  price  on  auction  basis  for  power producers/IPPs  having  already  concluded  long  term  PPAs  (both  under  section  62  and section 63 of The Electricity Act, 2003) based on domestic coal. Power producers/IPPs, participating  in  auction  will  bid  for  discount  on  the  tariff  (in  paise/unit).  Bid  Evaluation Criteria  shall  be  the  non-zero  Levellised  Value  of  the  discount  (applying  a  pre-notified discount rate) quoted by the bidders on the existing tariff for each year of the balance period of the PPA. Ministry of Coal may, in consultation with Ministry of Power, work out a methodology on normative basis to be used in the bidding process for allocation of coal linkages to IPPs with PPAs.

(a) The discount by generating companies would be adjusted from the gross amount of bill  at  the  time  of  billing,  i.e.,  the  original  bill  shall  be  raised  as  per  the  terms  and conditions of the PPA and the discount would be reduced from the gross amount of the bill. The discount shall be computed with reference to scheduled generation from linkage coal supplied under this auction. This would be applicable to both the PPAs contracted under Section 62 as well as Section 63 of the Electricity Act, 2003.

(b) Accordingly, PPA may be amended or supplemented mutually between the developer and  the  procurer  to  pass  on  the  discount  to  the  procurer  and  the  approval  of  the Appropriate Commission obtained, as per the provisions of the PPA or Regulations.

(c)  FSA  shall  be  signed  with  the  successful  bidders  after  the  terms  and  conditions  for signing of FSA are met and the Appropriate Commission has approved the amendment or supplement to the PPA.

(iii) CIL/SCCL may grant future coal linkages on auction basis for power producers/IPPs without  PPAs  that  are  either  commissioned  or  to  be  commissioned.  All  such  power producers/lPPs  may  participate  in  this  auction  and  bid  for  premium  above  the  notified price of the coal company. The methodology for bidding of linkages shall be similar to the bidding methodology in the policy on auction of linkages of Non-Regulated Sector dated 15.02.2016. Coal drawal will be permitted only against valid long term and medium term PPA with Discoms/State Designated Agencies (SDAs), which the successful bidder shall be required to procure and submit within two years of completion of auction process.

(a) In case of the commissioned capacities, FSA shall be signed with the successful bidders  after  completion  of  the  auction  process  provided  that  the  standard  terms  and conditions for signing of FSA are met. In case of others, a Letter of Assurance (LoA) may be  issued  by  CIL/SCCL  to  the  successful  bidder  and  FSA  shall  be  signed  after commissioning of the unit and fulfilling other conditions of the LoA.

(b) Further,  if  the  power  producer/IPP,  does  not  start  drawing  the  coal  within  two years of submission of the PPA, the FSA or the LoA, as the case may be, shall stand terminated.

(iv) Coal linkages may also be earmarked for fresh PPAs, by pre-declaring the availability of  coal  linkage  with  description,  to  the  States.  States  may  indicate  these  linkages  to Discoms/SDAs.

I. The States/Discoms may, based on such linkages, undertake tariff based competitive bidding  for  long-term  and  medium-term  procurement  of  power  as  per  the  guidelines issued by Ministry of Power and may recommend grant of these linkages to successful bidders. In case of the commissioned capacities, FSA shall be signed with the successful bidder after completion of the auction process. In case of the likely to be commissioned capacities, a Letter of Assurance may be issued by CIL/SCCL to the successful bidder and FSA shall be signed on commissioning of the unit. The successful bidder shall be required  to  meet  the  conditions  specified  in  the  Letter  of  Assurance  and  FSA.  The existing FSA/LoA holders may also participate in the competitive bidding for PPA and, if successful, shall surrender proportionate quantity of the FSA/LoA for the corresponding tenure; or

II.  The  States/Discoms  may  recommend  grant  of  the earmarked linkages  to  capacities that  are  covered  under  exceptions  and  proviso  clauses of  para  5.2  of  the Tariff  Policy dated 28.01.2016. A Letter of Assurance may be issued by CIL/SCCL to such capacities and FSA shall be signed on commissioning of the unit.

## Provided

(a) The priority between (iv) I and (iv) II above will be decided by the State Government concerned considering its public interest and based on its requirements.

(b) The quantity remaining unutilized for 2 years continuously shall lapse. Detailed policy guidelines for sub para (iv) shall be formulated by Ministry of Power.

(v)  Power requirement of group of States can also be aggregated and procurement of such aggregated power can be made by an agency designated by Ministry of Power or authorized  by  such  States  on  the  basis  of  tariff  based  bidding.  Coal  linkages  will  be earmarked  for  such  agencies  by  pre-declaring  the  availability  of  coal  linkage  with description, based on which such agency will undertake tariff based competitive bidding for  long-term  and  medium-term  procurement  of  power  and  recommend  grant  of  these linkages  to  successful  bidders.  The  methodology  in  this  regard  shall  be  formulated  by Ministry of Power.

(vi)  Linkages  shall  be  granted  for  full  normative  quantity  to  Special  Purpose  Vehicle (SPV)  incorporated  by  nominated  agency  for  setting  up  Ultra  Mega  Power  Projects (UMPP)  under  Central  Government  initiative  through  tariff  based  competitive  bidding under  the  guidelines  for  determination  of  tariff,  on  the  recommendation  of  Ministry  of Power.

(vii) Ministry of Coal in consultation with Ministry of Power may, subject to the availability of coal and the condition that such supply does not adversely impact the availability of coal  for  plants  based  on  domestic  coal,  formulate  a  detailed  methodology  of  a transparent bidding process for allocating coal linkages to IPPs, having PPAs based on imported coal, with full pass through of cost saving to consumers. Further, the successful bidder would not be allowed to claim any upward revision in the tariff on account of such coal linkages.

2. Since the Competent Authority has approved the proposal of Coal linkages Allocation Policy for Power Sector as mentioned in para 1 above, policy guidelines are circulated to all concerned for further action. The action taken report shall be sent to this Ministry from time to time.

(A. K. Das) Under Secretary to the Govt. of India

Copy to:

1. Secretary, Ministry of Power, Shram Shakti Bhawan, New Delhi.
2.  Secretary,  Department  of  Economic  Affairs,  Ministry  of  Finance,  North  Block,  New Delhi.
3. CEO, NITI Aayog, Yojana Bhawan, New Delhi.
4. Chairman, Railway Board, Rail Bhawan, New Delhi
5. Secretary, Ministry of Steel, Udyog Bhawan, New Delhi
6. Secretary, Department of Industrial Policy and Promotion, Udyog Bhawan, New Delhi
7. Secretary, Ministry of Law and Justice, Department of Legal Affairs, Shastri Bhawan, New Delhi
8. Secretary, Ministry of Chemicals and Fertilizers, Department of Fertilizers
9. Secretary, Ministry of Mines, Shastri Bhawan, New Delhi
10. Secretary, Department of Financial Services, Jeevan Deep Building New Delhi. 11. Prime Minister's Office, (Kind Attn.  -  Shri  A.  K.  Sharma,  Joint Secretary),  South Block, New Delhi.
12.  Cabinet  Secretariat  (Kind  Attn.  -  Shri  S.  G.  P.  Verghese,  Director),  Rashtrapati Bhawan, New Delhi.
13.  Director  (Marketing),  Coal  India  Ltd.  Kolkata,  Coal  Bhawan,  New  Town,  Rojarhat, Kolkata-700156.
14.  ED/Coal  Movement,  SCCL,  PB  No.  18,  Red  Hills,  Khairatabad,  Hyderabad, Telengana
15. CMD, CMPDI, Gondwana Place, Kanke Road, Ranchi, Jharkhand.
16. Chairman, Central Electricity Authority, Sewa Bhawan, R.K. Puram, New Delhi.

Copy also to:

Chief Secretaries of all States/UTs

Copy for information to:

1. OSD to MoS(I/C), Coal, 2.PS to MoS (VC), Coal, power & N&RE, 3. PSO to Secretary, Ministry  of  Coal,  4.PPS  to  Additional  Secretary,  Ministry  of  Coal,  5.  Sr.  PPS  to  Joint Secretary (RPG), Ministry of Coal, 6. PS to JS(VB), Ministry of Coal, 7. PPS to JS (RKS), Ministry of Coal, 8.PS to JS & FA, Ministry of Coal, 9. PS to Adviser (Projects), Ministry of Coal, 10. PS to Economic Adviser, Ministry of Coal, 11.PS to Director, CPD, Ministry of Coal, 12. Shri G.K. Vashishtha, GM(S&M), CIL, Laxmi Nagar, Delhi.

Copy to Director, NIC, M/o Coal with the request to place the same on the website of this Ministry.

(A. K. Das) Under Secretary to the Govt. of India