New Delhi, June 21 : The government Friday approved a mechanism under which power companies will be allowed to hike electricity price if the cost of imported coal goes up.

The Cabinet Committee on Economic Affairs (CCEA), chaired by Prime Minister Manmohan Singh, approved the new mechanism at a meeting here.

Finance Minister P. Chidambaram told reporters after the cabinet meeting that the rationale behind the decision was to ensure adequate supply of coal to the power companies.

“There will be a small increase in power tariffs,” Chidambaram said.

The finance minister said Coal India will do the bulk of the imports and supply it to power firms on a “cost-plus” basis.

However, power companies can also import coal on their own. They will be allowed to adjust the prices depending on the import cost.

Chidambaram said 65-70 percent of coal requirements of the power companies will be met from domestic sources. (IANS)