The latest decision by the Indian Railways to rationalise the tariff structure for coal transportation is expected to benefit independent power producers (IPPs) with a generation capacity of about 22,000 mega watt (MW). Under the new freight rate system, thermal power producers would now be compensated for various surcharges which, in the previous tariff structure, caused annual under-recovery of about Rs 2,000 crore. The new railway tariff subsumes additional surcharges like the busy season surcharge (BSS), development surcharge (DS) and coal terminal surcharge (CTS) levied on coal transportation. By doing that, these expenses would now be included in the price escalation index for coal by the Central Electricity Regulatory Commission (CERC). The index is used in the calculation of variable fuel charges of power production, liable to be passed through to consumers.

According to estimates by the Association of Power Producers, the average impact of BSS and DS was Rs 994 crore per annum since FY15. Under-recovery from CTS between August, 2016 and June, 2017 was more than Rs 1,000 crore. Though the base-price of coal transportation will now be higher, power generators—who use the majority of coal produced in the country—can recover all the expenses incurred on fuel transportation. However, experts noted that the benefits from the change in railway freight structure will only be realised from July onward, when the CERC is expected to prepare the price escalation index. For price recoveries of these surcharges imposed in the previous years (FY15-18), CERC has to approve them as ‘change in law’.

As reported earlier, the current fuel escalation index, which excludes assorted taxes and levies on coal and its transportation via the railways, has caused under-recoveries of Rs 8,400 crore to a clutch of independent producers over the five years to FY17.  In a letter to power minister RK Singh, IPPs had indicated that the index did not cover 49% of coal costs and 21% of fuel transportation costs. The development is expected to bring some relief to thermal electricity producers after Coal India raised the price of coal grades most commonly used by the power sector by 15-18%, hiking power generation costs by about Rs 0.10-0.20/unit.