Coal India refuses supply to new power plants

Producers say move shows CIL's attitude towards meeting fuel supply obligations

Sudheer Pal Singh / New Delhi Apr 27, 2012,
Business Standard
In a twist to the unending drama over coal supply, Coal India Ltd (CIL) has refused to supply to power plants commissioned since December 2011. The move is set to stall investment worth Rs 40,000 crore in new power capacity of 8,156 Mw. This includes a 300-Mw unit of Reliance Power’s Rosa power plant in UP and a 660-Mw plant of China Light & Power (CLP) at Jhajjar, Haryana.

The source of the current controversy is an April 19 circular issued by CIL’s subsidiary, Central Coalfields, for May. The circular stated the rake movement plan would be accepted only from plants that had signed fuel supply agreements (FSAs). This could bring power companies under pressure, as these are unwilling to sign FSAs in their current form, with a low-penalty level. Power companies give a rake movement plan to CIL, the coal ministry and the rail ministry a month before tying up necessary evacuation facilities for coal transport to plants.

The circular has left power companies jittery, as these were hopeful of receiving coal under the existing memorandum of understanding (MoU) route until FSAs were signed. CIL’s fresh missive is despite Prime Minister Manmohan Singh’s diktat in February, followed by the President’s order in April, asking the company to meet at least 80 per cent of the coal supply to 50,000-Mw capacity plants to be commissioned up to 2015, including 26,000 Mw commissioned by December 2011.

“CIL’s insistence on accepting the rake movement plan only from plants with FSAs has stalled 8,156-Mw capacity projects. This is an operational issue, but shows Coal India’s attitude towards meeting the supply obligation. This has happened despite the power ministry’s assurance to us that supply would continue under the MoU route,” Ashok Khurana, director-general of the Association of Power Producers (APP) told Business Standard. APP is an industry representative body of 22 major companies in the sector.

A Reliance Power spokesperson declined to comment on the matter.

Coal India would sign FSAs for 900 Mw of the total 1,200 Mw capacity of Reliance Power’s Rosa plant. The current controversy covers only a 300-Mw unit of the plant, commissioned after December 2011. CLP could not be contacted for comments.

Until March 2009, CIL supplied coal to power plants under FSAs with 90 per cent supply commitment. Since then, however, the world’s largest coal producer has been insisting on supplying coal under the MoU route, with only 50 per cent commitment and no legal obligation, as delayed clearances for new mines took a toll on production. When CIL decided to sign FSAs for projects commissioned till December 2011, after a Presidential directive, companies were assured by the power ministry that FSAs for projects completed by March 2012 would also be signed in due course. Meanwhile, supply to these plants would continue through the MoU route.

However, “apprehending CIL’s ingenuity in springing surprises”, APP took up the matter with the power ministry, expressing fear over the possibility of CIL refusing to supply coal. The power ministry had then assured the power industry that status quo would be maintained until FSAs were signed. “This circular, if not withdrawn immediately, would ground the entire 8,156 Mw capacity commissioned after 31 December 2011, adding to the power deficit and consumer woes. As the summer intensifies, the position is likely to worsen and, therefore, the capacity created should be utilised to the maximum,” Khurana said in an April 25 letter to Power Secretary

P Uma Shankar, Coal Secretary Alok Perti and Shatrughna Singh, joint secretary to the prime minister.

Meanwhile, CIL has already signed at least 10 of the 50-odd FSAs envisaged with power companies for plants commissioned between March 2009 and December 2011.