Finance Minister P Chidambaram said the Cabinet Committee on Economic Affairs has approved the pass through proposal, which would result increase in power tariff.
"There will be small increase in power tariff. It will be very marginal increase on unit cost of power depending upon the cost of import of coal," Chidambaram said briefing the media.
"They (IPPs) can import coal themselves if they wish, otherwise Coal India will import and this additional price which we pay for imported coal, obviously, has to be pass through in the power tariff," he added.
Chidambaram said: "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. For every MW today, I think the capital cost is between Rs 5-6 crore."
A Coal Ministry official said the move would result in higher power tariff to consumers.
"Though the quantum of the coal to imported has not been worked out but as per estimates if Coal India imports 15 percent of coal, it would result in increase in electricity tariff by 15 paise to 17 paise per unit," the official said.
Chidambaram further said the government has initiated measures to augment production and "by first week of July certain other decisions will be taken to open up more coal mines and to produce more coal".
In the meanwhile, coal imports were necessary, he added.
"In the interim period, there is no option but to import some coal. Imported coal is costlier than domestic coal. We are guaranteeing 65 percent this year to 75 percent by the end of 12th Plan (by Coal India) for each of these 78,000 MW capacity," he said.
Chidambaram said significant power capacities stand stranded today in India due to lack of coal and gas.
Elaborating on power tariff increase, he said: "We can't today estimate what will be the increase in cost of power and certainly it will not be uniform. It will depend upon power plant to power plant and where it is located."
He said while it was difficult to arrive at the quantum of increase at present, it would be "very marginal increase in the unit cost of power" if "we are able to guarantee them between 65 percent and 75 percent in the terminal coal of the domestic coal and if they import some coal to top it up".
A Power Ministry official said it would be very difficult at this point in time to ascertain the increase in power tariff as it would be done on a case by case basis.
Coal Minister Sriprakash Jaiswal, however, said it would not impact consumers. The decision would also not affect signing of fuel supply agreements (FSAs) by CIL with power firms, he added.
The pass through mechanism will be applicable for nearly 78,000 MW of thermal stations commissioned after 2009.
Under the proposed pass-through mechanism, the entire additional cost of imports would be passed on to the consumers as against the averaging of prices of imported and domestic coal under the earlier planned price-pooling mechanism.
The government had buried a proposal to pool prices of imported and domestic coal to make the fuel affordable to new power plants, owing to sharp opposition to the scheme.
The government is mulling import of the fuel as Coal India Ltd (CIL) will supply 65 percent of the requirement from domestic sources and another 15 percent can be provided from overseas market.
Earlier, the government issued a Presidential Directive to CIL to sign fuel supply agreements (FSAs) with the power producers assuring them of at least 80 per cent of the committed coal delivery.
So far 62 FSAs have already been executed. Of the 69 power plants which are yet to enter into fuel supply pacts with state-run CIL, 29 cases belong to NTPC and its joint ventures.
NTPC has not entered into FSA with CIL as it had raised concerns about quality of coal being supplied to its power plants.
Meanwhile, the power sector has hailed the move to pass-through cost of imported coal as the decision is likely to help many power companies.
Association of Power Producers (APP) Director-General Ashok Khurana said, "We are very happy. Our two years of hard work has finally paid off. This (the decision) will help 78,000 MW of capaciy of which 38,000 MW is new capacity."
He said the Association representatives had met the Prime Minister on the issue on January 18 last year.