The government today approved a mechanism under which power companies will be allowed to hike electricity price if the cost of imported coal goes up. Thermal power constitutes 57.42 percent of total power generation in India.
Since, electricity forms base for production and used as fuel in manufacturing various products, there will be a cascading effect on the economy and as well as on average consumer.
Currently, petrol, diesel and gas prices are subject to import bills and vary according the rates prevailing in the international market. Whenever petrol and diesel prices go up, there is a resultant hike in bus fares, consumer products and various other goods.
"There will be a small increase in power tariffs," Finance Minister P Chidambaram said today. The justification such increase according to Chidambaram is: "It is better to have power and pay a few paise more or not have power at all. It is better to have our power plants working and producing power or keep them shut down after investing thousands of crores."
Chidambaram saiys 65-70 percent of coal requirements of the power companies will be met from domestic sources. This leaves a shortfall of 30 to 35 percent and this will have to be imported.
The finance minister said Coal India will do the bulk of the imports and supply it to power firms on a "cost-plus" basis. The power companies can also import coal on their own. They will be allowed to adjust the prices depending on the import cost.
The Cabinet Committee on Economic Affairs (CCEA), chaired by Prime Minister Manmohan Singh, approved the new coal price mechanism at a meeting in New Delhi.
Chidambaram told reporters after the cabinet meeting that the rationale behind the decision was to ensure adequate supply of coal to the power companies.