Government asks PFC and REC to provide short-term loans to imported coal-fired power plants

The Department of Energy has ordered Power Finance Corporation and REC Ltd to provide short-term loans to imported coal-fired power plants that are in trouble or face insolvency proceedings amid the ongoing coal shortage which paralyzed the production of electricity in the country.

The guidance gains significance given the Department of Energy’s earlier order that required all imported coal-fired power plants to generate electricity at 100% generating capacity.

“The Union Department of Energy has ordered Power Finance Corporation (PFC) and REC Ltd to take necessary steps to arrange short term loans for a period of six months with adequate collateral, for ICB power plants (import of coal-based electricity) that are in trouble or in NCLT (National Company Law Tribunal), at the earliest,” a statement from the Department of Energy said.

These plants need working capital to buy coal and start generating electricity to restart their operations, the ministry observed.

PFC and REC are non-bank financial companies that finance projects in the electricity sector.

Union Minister of Energy and New and Renewable Energy, RK Singh held a meeting on May 9, 2022 on issues related to working capital of imported coal-fired power plants that are energized or in NCLT.

In view of the increase in demand and the unprecedented pressure on the national supply of coal, the Department of Energy on 5 May 2022 issued instructions under section 11 of the electricity, to all imported coal-fired power plants (ICBs) to operate and produce electricity at their full potential. capacity, even for projects that are stressed or under NCLT.

The guidelines will ensure that additional electricity is generated from imported coal and will be a net addition, according to the order.

The ministry in the order noted that most states have allowed the higher cost of imported coal to be passed on to consumers, which helped operationalize 10,000 MW of the total 17,600 MW of power plants. coal-fired plants imported into the country.

However, the ministry had said that “some imported coal-based capacities are still not working”.

The order is valid until October 31, 2022, the ministry said.

Electricity demand has increased by almost 20% in energy terms and the supply of domestic coal has increased, but the increase in supply is not sufficient to meet the increase in electricity demand , depending on the order.

“This (mismatch of supply and demand) leads to load shedding in different areas. Due to the mismatch between daily coal consumption for power generation and daily coal reception at the power plant, coal stocks at the plant have been declining at a worrying rate,” he noted.

The international price of coal has risen in an unprecedented manner. It is currently hovering around 140 US dollars per ton, he observed.

As a result, the impact of coal blending, which was around 37 million tonnes in 2015-16, has diminished, leading to increased pressure on domestic coal, the ministry had said in the order.

Generating capacity based on imported coal is approximately 17,600 MW. The PPAs for imported coal plants do not contain adequate provisions to pass on the full increase in the international price of coal, he said.

At present, the price of imported coal, the operation of imported coal power plants and the supply of electricity at PPA tariffs will lead to huge losses for generators and therefore they were not willing to make operate these plants, he observed.

(Only the title and image of this report may have been edited by Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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