KOLKATA (miningweekly.com) - India’s Power Ministry has expressed its apprehensions over the possibility of captive coal block holders profiteering if the proposed ‘coal banking’ scheme was implemented without adequate safeguards.

In a communication to the Planning Commission, the Ministry said that in the absence of any transfer pricing, the purpose of allocating captive coal blocks would be defeated if the block holder were to transfer surplus from a mine from one thermal power project to another without transparency in pricing of such transfers of feedstock.

The Planning Commission’s move to frame a coal banking scheme followed proposals from independent thermal power producers that producer Coal India Limited (CIL) should act as a bank for coal produced from captive mines owned by thermal power companies, returning the feedstock once the thermal power plants under construction were completed.

However, CIL had, so far, refused to be a part of the coal banking scheme on the grounds that given the heavy shortage of coal in the country, it could not provide any guarantee of returning the coal given to it from the captive mines of others.

With CIL not willing to play a role, the Planning Commission proposed that coal produced from the captive coal mines of one thermal power producer could be transferred to other power projects without any payment, subject to the condition that the latter projects transfer back an equivalent quantity of coal within a period of three years.

The coal banking scheme was aimed at helping companies that started production from captive mines but had not commissioned end-use projects, such as power plants, to transfer production from these mines to power plants of other companies already in production.

However, the Power Ministry cautioned that while captive miners needed to be incentivised to produce more coal from their captive mines than was required by the linked thermal power plants, the transfer of such surplus coal to another project could result in undue profiteering under the garb of coal trading, resulting in the cartelisation of thermal power producers with captive coal mines.

Under current rules, companies which have been allocated coal mines for captive consumption were barred from transferring coal produced to any other user projects under its own control or controlled by other private or public companies.

Thermal power producers consume about 75% of the domestic coal production of 558-million tonnes a year, with production from captive coal mines pegged at about 100-million tonnes a year.