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Expect power costs to come down by up to 50 paise a unit: Goyal

The Cabinet today appproved the second phase of coal linkage policy.

The policy is expected to bring down the cost of production and benefit small steel companies. 

Speaking to CNBC-TV18, Union Minister for Power and Coal Piyush Goyal said the policy will definitely reduce the cost of power and cost benefits will be passed on to the consumer through discoms.

“Expect power costs to come down by up to 50 paise a unit,” he said.

Overall, states can look to save about Rs 25,000 crore when the new policy is implemented by all states. 

Coal tolling, which will allow the states to bid for coal situated near the mine, will bring down the burden on state coal utilities, he added.

Below is the transcript of Piyush Goyal’s interview with CNBC-TV18’s Rituparna Bhuyan.

Q: What are the changes in the second phase of coal linkage policy

A:Existing linkages over the years have been given out in a haphazard fashion. In that each plant has a linkage and very often it is from far off coal mines which entail a lot of transport, freight costs, lot of pollution in the environment and therefore the discoms and then the consumers have to bear the cost of high electricity tariffs. We have now allowed all coal linkages which are given to all the plants of a state utility or the central utility like NTPC or DVC to be combined as one linkage to that state and the state or the central utility will be given freedom to utilise that coal in the most efficient and effective manner to bring down the cost of power. So, if NTPC has 40 plants all over the country and different linkages for each plant now all of those linkages will be considered as one. All existing linkages will be to NTPC and they can see which is the most effective way of distributing and utilising it so that modern and new plants which can run to much higher PLF and produce cheaper power. Even after considering the standing charges, the fixed cost of all the plants put together effectively this will reduce the cost of power and that benefit will be passed on to the consumers of India through the discoms by the regulatory authorities.

Initially this will be allowed for the state and central utilities. Once there is successful implementation of the first phase we will also allow the private sector to take the benefit.

Q: What is coal tolling or trolling, if you could explain that to us?

A: We have also approved coal tolling in which utilities which are situated very far away from the coal mines, instead of transporting the coal to long distances which is both deteriorates the quality of coal, pollutes the environment and adds a huge freight cost, tolling allows the state or any other utility to bid out through a transparent mechanism the available coal to plants situated near the coal mine so that they can use that coal, produce electricity and transmit it to the beneficiary state, the overall cost being lower than the existing cost – the condition being that the overall cost considering the fixed charges of the existing plants, the charges that the new entity who will produce power will take and the cost of coal albeit a reduced cost of coal because it will be a nearby plant. If the total along with the transmission charges is less than its current cost of production of power, this will be good for the state utilities and effectively bring down their burden of electricity purchase.

Q: Any estimate on how much will it bring down the cost of power and coal?

A: Our own estimate is that as we progress this could result in an overall saving nationally to bring down the cost of power by between 40-50 paisa per unit. So, it has a huge potential considering the losses in the power system you can add that benefit also. Effectively when you take the whole nation as a whole we had in the UDAY scheme given some estimates of savings because of rationalised usage of coal, coupled with the original rationalisation that we had already started – the current second phase of rationalisation, the tolling that we have permitted, my own sense is that in the next 4 or 5 years as this keeps expanding – the scope of this facility it could lead to a saving of nearly Rs 25000-30000 crore annually.