CoalMin to push for dilution in coal supply pact today

Sudheer Pal Singh / New Delhi Jun 22, 2012,
Business Standard
The coal ministry would push for significant dilution of the provisions of Coal India Ltd (CIL)’s current fuel supply pacts with power companies in tomorrow’s meeting at the Prime Minister’s Office (PMO).

“The ministry will propose lowering CIL’s supply commitment under new fuel supply agreements (FSAs) to 65 per cent of the contracted quantity for the first three years, 72 per cent for the fourth year and 80 per cent for the fifth year,” a senior official from the coal ministry told Business Standard. The proposal to increase the penalty level is aimed at compensating for this reduced commitment.

The current format of the FSA, backed by directives from the PMO and the President’s office, bind CIL to supply at least 80 per cent of the contracted quantity right from the first year of supply. Also, the penalty level in the current FSA format has been kept at 0.01 per cent of the value of shortfall, a provision that has been protested tooth and nail by power firms. According to the original FSA, however, CIL had to pay 10 per cent of the value of shortfall as penalty.
Tomorrow’s meeting will be chaired by the Prime Minister’s Principal Secretary, Pulok Chatterjee, Coal Secretary S K Srivastava, coal ministry adviser and former secretary Alok Perti and CIL Chairman S Narsing Rao. The meeting has been called to defuse the logjam over FSA provisions, which, power companies argue, have been heavily tilted in favour of the miner.

However, the ministry’s “compensation” formula is unlikely to enthuse power firms, already miffed at the uncertainty in fuel supply for new power capacities at the back of the “biased” format of the current FSAs. “No plant will function on 65 per cent coal availability, as it will result in a Plant Load factor (PLF) of 50 per cent. At this low PLF level, the power regulator will not allow the developer to recover even fixed charges,” Ashok Khurana, Director General of the Association of Power Producers (APP), told Business Standard.

Even an 80 per cent supply commitment by Coal India, provided in the current FSA format, translates into a PLF of 68 per cent for power generators. “The government should work out ways to bring an alignment between reduced coal availability and the power sector’s regulation,” he added. APP is a representative body of large private power producers including Reliance Power, Tata Power, Adani Power and Lanco.

The issue of penalty provision has deterred power firms including the largest generator, NTPC, to reject the new FSA format. CIL has however, managed to sign FSAs with 27 power companies, including Reliance Power for its Rosa plant, Lanco for its Anpara plant and Bajaj Hindusthan.

Other issues likely to be discussed in tomorrow’s meeting include, revision of the three-year moratorium on penalty payment by CIL, price pooling of costly imported coal in case of shortfall, the new policy of auctioning coal blocks and cancelling allocations where production has been delayed.

Also, the coal ministry on Thursday formed an inter-ministerial group headed by the additional secretary in the ministry, Zohra Chatterjee to look into the reasons for delays in production from 58 captive blocks allocated over the past many years. This assumes importance as the Central Bureau of Investigation is currently probing the allegations of irregularities in allocation of 65 captive coal blocks to private firms between 2006 and 2009.