Business Today

Welcome diversion?

Anilesh S. Mahajan        Print Edition: June 10, 2012

Anil Ambani may have come a cropper in his battle with elder brother Mukesh Ambani's Reliance Industries for cheap gas to fire his power plants, but he may have better luck in his quest for coal. The government appears set to allow power producers with captive coal mines the right to use any surplus coal in other power projects. And that is what the Chairman of the Reliance Anil Dhirubhai Ambani Group hopes to do with subsidiary Reliance Power's captive coal mines in Madhya Pradesh. However, it is not a certainty yet as a Supreme Court decision could overturn the policy. The apex court is currently hearing a case where the complainant, Tata Power, wants the diversion of coal disallowed.

The back story to the court case goes up to the United Progressive Alliance (UPA) government's dream of building massive power plants, each generating 4,000 MW of electricity. In 2006, after submitting the winning bid, the Lanco-Globeleq consortium signed an agreement with the government to build an "ultra mega power plant" in Sasan, Madhya Pradesh. The agreement also gave it access to captive coal mines nearby. However, the deal was declared void ab initio (invalid from the outset) by an Empowered Group of Ministers (EGOM) due to alleged misrepresentations by the consortium at the bidding stage. An EGOM has the authority to take a final decision on an issue without Cabinet approval.

Enter Reliance Power, which submitted the lowest bid in a fresh auction. The deal with the government allowed it to extract 16 million tonnes of coal per annum for 25 years, from three fields. Located in Moher, Moher-Amlohri extension and Chhatrasal, the fields had total reserves of 707 million tonnes (MT).

Reliance Power's bid was to sell power at Rs 1.196 per KWH, and it will supply power to seven states at that tariff. When the first phase of the plant is commissioned this winter, it will be the cheapest power available in India.

However, in August 2008, a year after it got the Sasan deal, Reliance Power sought to extract 25 million tonnes of coal annually, of which it proposed to divert nine million tonnes to its power plant in Chitrangi (MP). An EGOM deliberated over the plan and cleared it. However, the decision was challenged in court by Tata Power, one of the failed bidders for Sasan. The company felt a change in the terms was unfair to the initial bidders.

Making matters worse for Reliance Power, a report on the Sasan decisions by the Comptroller and Auditor General (CAG), indicated that Reliance Power would make windfall profits by diverting the surplus coal. Eventually, the government decided to stick to its original stand of allowing the diversion after getting a legal opinion from the Attorney General's office. Soon, other power producers, who are also awaiting clearance to divert surplus coal, may get similar approval. Union Law Minister Salman Khurshid says a comprehensive new policy is being finalised based on the Attorney General's opinion, which implies that the government has the right to allow power producers to divert coal to other power projects.

According to the Coal Ministry, the country faces a shortage of 116 MT of coal. Diverting the commodity will help the government meet its target of adding 100,000 MW of power in the 12th Five Year Plan. While most power producers are upbeat over the decision, Reliance officials have stayed mum. Tata Power, too, declined comment saying the matter is sub judice. The case is expected to come up for hearing in July.

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