Linkage Rationalization for Independent Power Producers (IPPs) (Download PDF)


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Union Ministry of Coal approved recommendations of Inter-Ministerial Task Force (IMTF) unfolding coal-linkage methodology for Independent Power Producers (IPPs) on 16th May 2018. Task force was constituted to undertake comprehensive review of existing coal sources of IPPs having coal linkages & consider feasibility for rationalisation of these sources to optimise transportation cost.

Image of Ministry of Coal Year End Review 2017

Image of Ministry of Coal Year End Review 2017

Image of Ministry of Coal Year End Review 2017

What is Coal Linkage Rationalisation?

  • Total coal reserves as per the Ministry of coal is about 301 billion tonnes with India producing half a billion tonnes of coal each year.

  • Target for coal production in the next five years is 1.5 billion tonnes annually from the existing half a billion tonnes.

  • Due to the lower coal production in the country by CIL (which comprises of 77 % of coal production in the country and rest by companies under state governments and private players), the demand has to be fulfilled by importing coal.

  • Coal linkage rationalization means buying coal from mines which are closer to the power plant, thus saving money on transportation/logistics.

  • Earlier it was compulsory to buy coal from the allocated coal block, but to reduce the generating cost of electricity by reducing the transportation costs, proposals have been made to buy coal from mines which are closer to the power station. This is actually called as coal linkage rationalization.

  • It means supplying coal from one thermal station having sufficient stocks to the other which have deficit.

  • Power stations which are closer to the ports would also use more of imported coal than far away from the ports.

Impact of Coal Linkage Rationalisation

  • Reduced landed price of coal will lead to savings in cost of power generated & will reduce transportation cost of coal.

  • Exercise shall help in reducing load on transportation infrastructure.

Recommendations of Inter-Ministerial Task Force: Advantages of Coal Linkage Rationalisation

  • Under coal linkage rationalisation, coal linkage of thermal power plant (TPP) of Independent Power Producer may possibly be transferred from one Coal Company to another based on availability during fiscal.

  • Coal linkage rationalisation will reduce landed cost of coal due to reduction in transportation cost.

  • Savings or profits achieved thru this rationalisation will be passed on to Discom or consumer of power.

  • Exercise shall be voluntary on part of thermal power plants w/aim to reduce distance by which coal travels, thus, easing up Railway infrastructure for gainful utilisation for other sectors.

  • One time process of calling IPP for coal linkage rationalisation will be undertaken jointly by Coal India Limited (CIL), Singareni Collieries Company Limited (SCCL) & Central Electricity Authority (CEA) in transparent manner.

  • Process will be considered only for IPPs having linkages thru allocation route. IPPs will be required to state Min. Order Quantity (MOQ) for which linkage rationalisation will then be requested.

  • Fuel Supply Agreement (FSA) of rationalised source from any coal company would be signed only after approval of appropriate Electricity Regulatory Commission.

  • Any dispute arising during process would be resolved as per provisions of Arbitration & Conciliation Act, 1996.

Implementation Strategy & Targets

  • Proposed rationalization of linkages is transparent, objective & creates level playing field for IPPs in each domain.

  • It attempts to make optimal rationalization of vital natural resources across power units of IPPs.

- Published/Last Modified on: July 7, 2018


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