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Coal auction expected to bring down power tariff

Last Updated 20 February 2015, 18:49 IST

 Your monthly electricity bills may see a dip if power companies transfer the benefits accrued from the ongoing coal auction to the consumers.

With the Ministry of Coal introducing reverse bidding in the ongoing coal auction to power sector, the government expects that the electricity firms should transfer the benefit of getting cheap coal to consumers by lowering the tariff.

Reverse auction means, coal blocks will be allotted to the lowest bidder than highest bidder. The reverse bidding was deliberately introduced by the Coal Ministry to keep the price of coal low so that power tariffs are not impacted by the costly fuel.

In the reverse auction, government sets a ceiling price that is representative of production cost of Coal India. The private sector companies, which are considered more efficient, are expected to bid at lower price.

For example, if the ceiling price is Rs 1,000 and the bidder bids Rs 800, then the benefit of Rs 200 is directly passed on to consumers. This would mean if the power is sold at Rs 3.50, out of which is Re 1 is cost coal and the same will become 80 paise if the company chooses to pass the benefit of Rs 200 to the consumer. Thus the new price of power will be Rs 3.30 per unit.

In case the bids touch zero, meaning that the private producer is ready to pass on the benefit of coal extraction to power consumers, there would be a forward bidding. Under the forward bidding, the companies will be required to mention the price which they are willing to give to states.

In the current bidding the reverse auction for the power sector will result in benefits to the tune of Rs 37,050 crore to end-users by way of a cut in tariff, Coal Secretary Anil Swarup says. The government has put on block 19 mines in the first tranche of auction in which 16 already bagged by different firms.

On benefits to power consumers, he said: “This is also a huge amount (Rs 37,050 crore). Because this is getting lost... most of the auctions have begun at zero...But what we are forgetting is that it comes from a ceiling price of a particular level and comes down to zero and this is the value that will get transferred to the tariffs.”

An the official in the Coal Ministry said that in future, the Electricity Regulatory Commission may take into account the low price coal blocks won by power companies while fixing electricity tariffs.

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(Published 20 February 2015, 18:49 IST)

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