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Q. Coal allocation and power generation: Discuss the how new coal policy SHAKTI will address the issues that Indian power sector is facing.
May 23, 2017 Related to : GS paper-3

Ans :


Recently the Union Cabinet has approved a transparent system of bidding for domestic coal supplies. It approved a new coal linkage policy that seeks to lower power tariffs by allocating coal blocks through a reverse auction. The new policy is called SHAKTI (Scheme for Harnessing and Allocating Koyala Transparently in India) will lead to gradual phasing out of the old policy.


  • According to new policy, the power producers that have power purchase agreements and no firm fuel supplies would now need to participate in reverse tariff auctions and plants with no power pacts would need to bid for coal supply. 
  • These contracts should anticipate the possibility of the government getting around to opening up Indian coal to merchant mining, in which case there would be a functional market for coal that downgrades existing coal linkages from lifelines to just one kind of a long-term supply contract.
  • If a future market for coal throws up significantly lower prices, the coal linkage contract should be flexible so as not to deny the buyer the benefit of better future prices merely because it agreed to a higher price at a time when there was only one seller in the market.
  • But easing the supply of coal will not address the problem of seeming excess capacity in the power sector. Generation capacity of several thousand megawatt remains idle, for want of firm demand from state power utilities. 
  • Given the weak finances of distribution utilities, and continuing lack of political will to levy reasonable user charges will not make it viable and it will bring to back down rather than meet rising demand. 
  • Hence we need to promptly overhaul such a bankrupt system and issues like reckless populism, rampant theft of electricity, non-billing must be addressed effectively else it leads to massive fiscal stress. 


The new coal supply policy SHAKTI is intended to simplify the coal supply process by making it more transparent process. It is a welcome move, but easing the issue of supply of coal will not address the various problems that are associated with Indian power sector. Hence government should other problems associated with power sector like reckless populism, rampant theft of electricity, non-billing etc.   

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