News Detail

• Former power secretary, Anil Razdan says its premature to take a view on the losses incured by the government due to adopting faulty practices while allocating coal blocks to companies, as mentioned in several media reports.

•  In an interview to CNBC-TV18, Razdan pointed that  companies might have been awarded coal block to facilitate lower power rate.

• The former power secretary was referring to the Comptroller Auditor General's (CAG's) draft report which estimated Rs 10.6 lakh crore loss to the state exchequer on account of allotment of coal blocks without an auction, as is the procedure, during 2004 to 2009, to 100 private and public sector companies.

• The draft created a political storm leading to disruption of proceedings of the Lok Sabha and the Rajya Sabha yesterday.

• However, CAG in a letter to the Prime Minister's oiffce said that the CAG report on coal were observations which are under discussion at a very preliminary stage, do not even constitute 'pre-final draft' and hence are exceedingly misleading.

• Below is an edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.

• Q: Do you think even if the CAG allegations are not entirely factually correct, do you think there could be some implications on coal policy and maybe even a move to cap power tariffs for coal based power plants, people who sell on merchant basis, because of the feeling that they may have gained disproportionately from such allotments?

• A: I think you are quite right in your assessment that if at all review is taken of the very old policy of the government for allocating these coal blocks to steel, cement, power. The whole idea was that since coal is an input and states were not in a position to set up more generating facilities and gradually the private sector was getting in, the power market is not very good. So provide ready availability of coal which Coal India could not supply and help them generate a lower tariff which would be attained through a price bid mechanism as is prescribed in the Electricity Act and the Tariff Policy. But I do see that probably there is a case for putting a cap on merchant power gains through any concessional or preferential allocation of coal at a controlled rate or as a commodity, certainly that could be there.

• But then as general grid power becomes available, long term power PPAs are available, in any case I think the merchant power rates would have tapered off. Those who made huge gains in the initial years, say a year or two when we were having big shortages and that's why we planned such a massive jump in capacity addition. I am glad to say that we almost could be achieving probably around three times what we have, so this will slowdown the rate hike in the merchant power.

• But I do see that there could be some cap on merchant power derived through concessional coal because power is a regulated sector and it is based on tariff biding as per the new norms. It is up to the regulators now to try and go hard to ensure that the distribution companies get their power in time for the consumer, the best rates so that they don't have to go in emergencies out to purchase this merchant power.

• Q: What you are suggesting is quite important and material for a large number of power producers. How long could it take to put such effective tariff cap in place, who would be the deciding authority and what is your own sense of what kind of a cap you could be looking at?

• A: If you are looking at coal based generation, which is today the cheapest source of generation, I would say that the regulators may take a call that nobody makes a killing in that time shortage. It is a power supply-demand supply situation; supply may not become available very soon because although these mines have been allocated according to coal ministries policy, a very large number of them are nowhere in near production at the moment. So it will take a little time for the capacity to get full coaled. In any case for the LNG or the national gas based generation it is a tough time also.

• I would be looking maybe if the regulators think of a cap if they can under the existing rules that nobody makes an excessive killing or a gain out of it. Maybe topping around Rs 5 or something like that because after all merchant power also he has derived. He has build up in his entire project on his own balance sheet, he has not looked at long term PPAs because financing institutions do not really take comfort of a long term PPA. So he has to have some backing behind him, he has taken a bigger risk and you have to pay for that.

• I think in international markets also where you have the trading power, where there is acute shortages momentary spikes are very high so maybe when we are wanting a stable grade, we want reliability of supply, we don't want a great collapse situation. In those spiky situations, maybe for a block or two blocks of 15 minutes each or maybe a block of an hour or two at the most, regulators for the safety of the grid and for causing acute discomfort to consumers may like to cap some rates for a while.

• Did You Read: Coal blocks allotted in transparent manner: Jaiswal

• Q: In your experience with the entire sector, what would you say about the figure that is being bandied around on the size of this entire issue? Would you say the Rs 10.7 lakh crore that is being reported is way off the mark or is in the realm of possibility?

• A: I wouldn't hazard a guess, let the report be out. There are various ways of comparing a situation - when a mine was developed, at what price Coal India mine was acquired, what were the land compensation rates, what were the R&R components, what was the machinery cost, so there are various factors. I think a good comparison maybe for a public sector or private sector whoever has done it when Coal India develops new mines, what is the cost of the present day mine, not a cost of production of a mine which has been taken which started production in the distant past.

• I think the whole idea of introducing this license for whoever wants to generate and give him incentives is encouraging because more and more people will bring about efficiency, greater amount of power into the market and let the consumer ultimately have the gains of efficiency. Also, in the times to come, it will bring the choice of a particular power supplier and the source of supplying through open access or through other means.

• There are various inputs which go into project you see - one is coal, there is water which is also a natural resource, land is also a natural resource. So if you start putting a price on water which we have still not started doing yet - that's another issue that will come up in the future. So anyway, let's see that the whole report comes out and then I suppose one can take a view. I think it's rather premature to take a view at the moment.

• Q: Aside from a potential cap on rates as you suggested, there is also a fear that this may go down the telecom scam way, which is that there is a retrospective quality to it. Would you say that is a potential fear that there is some kind of retrospective action in terms of allocation of coal blocks?

• A: I don't know yet at the moment, let the report come out, let the government react because it is a call on the ministry of coal. We got to take a view but then yes, auction maybe one mode we have. We decided for the ultra mega power projects that you go on a tariff based bidding, which is put out the block available and they bid.

• Another way out could be maybe that you look for somebody who gives you coal at the least price say for 25 years for the life of a plant or a life of a mine. That is another way of looking at it because ultimately if you want to make power cheap for consumer you got to see how you can go about doing that. In respect to your question on retrospective operations, I would not hazard a guess at the moment.

• Q: The other suspicion which a lot of people had is that these kind of reports actually put the whole bureaucracy into a bit of a freeze mode and they are unable to act for fear of retribution. So files do not get passed and generally these sectors go through a very deep kind of sluggishness. Do you see the possibility of this happening now with so much media and political attention around this?

• A: I think you are very right. When a sector is nascent and is growing, we have seen post independence essentially the public sector grow in the power sector and also maybe in some of the other energy industries. When we are trying to induce private capital into it, I think there needs to be stability of policy of investment for a good time frame, maybe 5-10 years, so that these people who are investing public money into those ventures know what is going to be the future.

• In any case you see the distribution companies are giving quite a few headaches to generators because they are not raising their tariffs enough. The regulators have probably been a bit of a miss also at the state level. Till the other end is tied up in any case this sector has enough problems, so I would say that like young plants which needs to be nurtured for few years till it is established its roots and its environment and is able to stand on its own, we got to be little protective.

• Of course careful in what we first decide to give as inputs, but then there has to be stability in policy for some years for that sector and that kind of investment to mature because otherwise investor has other options. Why should he invest only in the power sector, he can go into trading, he can go into real estate, he can go into many other areas. He is not bound by law or religion to only invest in a particular sector.

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