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CERC seeks stakeholder comments on calculating escalation rate of imported coal

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Discoms have to make payments to Gencos on a weekly basis

The Central Electricity Regulatory Commission (CERC) has floated a paper on calculating the escalation rate for imported coal for payment on a monthly basis, which will be used by Discoms to make payments to Gencos for purchasing electricity.

The Government wants to make use of the monthly escalation index for imported coal as part of future power purchase agreements (PPAs).

The central regulator has floated a staff paper – Methodology for Computing the Escalation Rates for Imported Coal for Payment on a Monthly Basis. It has asked stakeholders to submit their comments and suggestions on the same by May 20, 2022.

“Ministry of Power (MoP), vide its letter dated April 13, 2022, has communicated its decision on the requirement of notification of escalation rate for imported coal for payment on a monthly basis. In this regard, the CERC is required to notify the escalation rate for imported coal for payment on a monthly basis,” it said.

The Ministry communicated to the regulator that it has decided that the escalation index for imported coal may be notified on a monthly basis by CERC, in addition to the present six-monthly escalation index.

“In existing PPAs where the generating company and the procurer agree, they can use the monthly index. For future PPAs, the Government proposes to make provisions in the bidding guidelines and bidding document for use of the monthly Escalation index for imported coal. The present practice of notifying escalation rates every six months, in addition to notification on monthly basis, should also be continued, to be used by sellers and procurers, in the context of concluded PPAs,” the ministry added.

The development assumes importance as on May 6, the Ministry invoked Section 11 of the Electricity Act, which allows the Government to order a Genco, in extraordinary circumstances, to operate and maintain any generating station in accordance with the directions of that government. This has been done to direct all imported coal based (ICB) power plants to start operations.

Under the Ministry’s directions, the high price will be allowed to pass through. This will be done through a Committee that will fix the rate of power based on the prices of the imported commodity. Discoms have to make payments to Gencos on a weekly basis. With prices of imported coal fluctuating, the process will aid in making the payments at the latest rates.

Proposed methodology

CERC has proposed that the escalation rates for different escalable sub-components for computing energy charge for plants based on imported coal shall be notified on a monthly basis. These sub-components are escalation rates for imported coal, its transportation and its inland handling.

The data on price and price indices presently used for computing escalation rates for imported coal on six-monthly basis can be used for monthly basis. It includes the Price/ Price Index of Australian Coal (Global Coal), South African Coal (API4 of Argus) and Indonesian Coal (ICI3 of Argus and Platts Index).

On escalation rate for transportation of imported coal, the price of VLSFO at Singapore of Clarksons will be used. For calculating the escalation rate for inland handling, the use of Wholesale Price Index (WPI) and Consumer Price Index for Industrial Workers (CPI-IW) will be utilised.

Published on May 08, 2022

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