Sudheer Pal Singh / New Delhi May 17, 2012,
BUSINESS STANDARD
The negligible penalty for supply shortfall set by state-owned Coal India (CIL) as a condition for committing supply to fuel-starved power plants is not the only reason why power companies have rejected the new model supply agreement. This has brought the government’s efforts to resolve the ongoing coal crisis back to square one.
A detailed analysis of the contentious clauses in the new fuel supply agreements (FSAs) reveal what the power companies are calling a “heavy tilt” in favour of the miner. Miffed at the controversial provisions, the companies are now considering knocking at the doors of the Prime Minister’s Office (PMO) again. This comes less than two months after a special presidential decree forced CIL to commit fresh supplies. This has also left investments worth thousands of crores in new power plants stuck.
The new FSA not only mandates a long-term power purchase agreement (PPA) in place (a completely new condition), but also promises supply only for plants commissioned before December 2011. The PMO, in its diktat issued in February, had asked CIL to commit supply for plants commissioned till 2015. The FSA also refuses to recognise a PPA through which power is sold under market-driven prices. Power companies are irked, as they want even PPAs signed with trading licensees to be recognised.
The new FSA also defines the coal distribution system in a generic manner as “any distribution system in force”. Power companies fear any adverse change in the distribution system could, therefore, lead to termination of the supply agreement. Another bone of contention is the duration of supply being committed by CIL. While PPAs, a pre-condition for supply, are signed for 25 years, the new FSA commits supply only for 20 years.
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