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Ex-Power Secretary cautions against "PowerGate" in a letter to Cabinet Secy
A former secretary (Power) has cautioned the Government about the implications of proposed coal linkages from Coal India Limited (CIL ) in favour of nine power producers in the absence of earlier fuel supply agreements and has warned the Government against rushing in to a "PowerGate" this time.
E.A.S. Sarna, former Secretary (Power) to Government of India in a letter to Ajit Seth, Cabinet Secretary, has drawn the attention of Government of India about the reported move to divert CIL's coal to nine private power producers of the country.

Sarna has alleged that if the reported proposal is true then it would tantamount to granting an undue cumulative largess of around Rs 1.52 lakh crores to the private companies at the cost of the public exchequer.

The private companies that would benefit from this move are Adani (two projects), Bajaj, GMR, Jindal, Essar, Monnet Ispat, BC Jindal and GVK. The cumulative capacity involved is 10,580 MW.

Sarna claims in his letter that in the normal course, these companies would have either imported coal or obtained it from their overseas mines in Indonesia and other locations at prices exceeding Rs.4, 000 per tonne.

Forcing CIL to supply them domestic coal at the notified price of Rs 1, 500 per tonne would therefore amount to granting them an undue advantage of more than Rs 2,500 per tonne. Had they been asked to buy coal through CIL's auctions, CIL would have benefited by getting a truly competitive market price.

In fact, some of these merchant power producers had already bid for supplying power to State utilities through a competitive bidding format and agreed to supply power at "fixed" prices, irrespective of the fluctuations in the market price of imported coal. The others among them have taken the risk of finding consumers and selling them power at spot rates.

Cautioning the Government, the letter says that the earlier UPA government had gone to the extent of issuing a Presidential Directive to CIL against all canons of propriety. The present government can ill afford to repeat a similar but more egregious impropriety. Moreover diversion of CIL's coal to others will therefore adversely affect coal supplies to Central and State power utilities, compounding the power shortages which are already crippling the economy.

Several power utilities had to idle their power plants as a result of the malfeasance on the part of that company. On the other hand, it is inexplicable as to how the same government has now proposed to force the CIL to supply coal at a price that is evidently 2.7 times lower than the world market price of coal, just to favor a group of nine private power producers. This is indeed bizarre.

The proposal seems to have something to do with the "Coalgate" scam in which some of these power producers have obtained captive coal blocks through questionable grounds. Some of them have obtained loans from the PSU banks through equally questionable means and those loans have become NPAs.

It is possible that the government, instead of questioning the PSU banks on their imprudence, is now trying to whitewash Coalgate and NPA scams by asking yet another PSU, CIL to bear the losses.

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