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Cabinet approves new coal linkage auction policy for power, names it ‘Shakti’

The Cabinet Committee on Economic Affairs (CCEA) approved the coal linkage auction policy for the power sector today. This comes as a good news to power producers that have a lot of stressed assets.

The coal linkage auction policy for power has been named ‘Shakti’ – a scheme to harness and allocate koyla transparently in India.

The following aspects will be covered under the new policy –

— State and Central power generating companies and joint ventures will get linkage as per the Power Ministry’s recommendations.

— Existing power purchase agreement (PPA) holders without linkages will have to bid for discount on the existing tariff.

— Projects without PPA will have to bid for tariff for acquisition of linkage at Coal India notified price.

— For future PPAs, which are about 20,000 megawatt projects in the thermal power sector, companies that bid out the lowest tariffs will get assured supply of coal for medium or long term as per their PPA. Imported coal, the methodology for which has to be decided by the Ministry of Coal and Power. Medium-term linkages will also be provided for the thermal power project.Bonaz Capital
Getting coal through the coal linkage auction will include FSA route which is cheaper than the coal available via the e-auction process.
This has been discussed thrice in the past one year. This means that the stranded assets about 20,000 megawatts which do not have PPAs they can participate in the linkage auction and get in for short supply for medium to long term.
The coal linkage policy will be a boost for companies like CESC, Adani Power, KSK Energy among others.
Adani Power’s 27 percent of domestic coal based capacity is linked with the domestic coal and as the coal linkage policy has come through it will rise to around 95 percent. These companies currently get coal via e-auction or they import it which is 15-20 percent higher in price than the domestic coal.
For CESC, 18 percent of its coal capacity at present is linked through FSA and it can go as high as 87 percent after the passage of coal linkage policy.Bonaz Capital
Analysts say that the overall stance on the sector will now become more optimistic.