KOLKATA (miningweekly.com) – To ensure optimal use of coal blocks allocated to government-owned thermal power companies, the Indian government will now allow swapping of coal between two such companies.

The swap will be permitted between two government thermal companies on condition that both have been allocated coal blocks under the preferential allotment dispensation or that one has a coal block and the second has a confirmed supply linkage with either Coal India Limited or another coal mining company.

The swap could be either in terms of volumes of coal transferred from one power company’s mine to the other, with the recipient returning the volume at a later date or accepting the fuel in lieu of generated electricity to the coal supplying power company.

“The agreement between the two power companies should be for optimum utilisation of the coal mines for the same end use and in the public interest and achieve cost efficiencies. The overall objective of the agreement should be to reduce cost of power generation,” an intra government memo circulated on the issue said.

Elaborating on the rationale of permitting swapping of fuel, a government official said this week that, often power companies had not completed all units of a power project, while the coal mine was already operational, leaving it saddled with a coal surplus.

Conversely, sometimes thermal power plants were fully operationalised, but companies struggled to obtain all mandatory approvals for their allocated coal blocks and faced fuel shortages.

In these cases, swapping would ensure optimal use of coal mines and cost effective power generation by not having to resort to merchant purchase of coal or imports, the official said.

However, there would be restrictions and scrutiny of any such coal swap agreements and a government committee had laid down parameters that swap deals would need to adhere to, he added.

For example, production from any of the coal mines operated by either of the companies would not be permitted to be reduced once a swap agreement was finalised between the two.

If a thermal power company was to receive coal in lieu of electricity, both companies would need to certify to the government the techno-commercial feasibility of the arrangement and availability of grid capacity to transfer the electricity generated from the coal receiving power company to the coal supplying power company.

All agreement would have to mandatorily vetted by the technical committee set up by the government with the latter mandated to scrutinise the justification of the swap deal, the calculations and basis of arriving at the objectives stated, relevant calculations showing reduction in cost of power generation and actual cost of power generation before the swap agreement based on operating parameters of station heat rate, coal gross calorific value and coal cost inclusive of transportation, royalties, taxes and cess, the government memo noted.