CIL asked to sign more FSAs; but power firms are wary

New Delhi: The coal ministry has directed Coal India Ltd (CIL) to sign more fuel supply agreements (FSAs) with power companies even when a mere 14 from the previous batch of 48 have been signed till date.

Power companies such as NTPC have been protesting about the low penalty clause which CIL has incorporated in these agreements and have sought help from the power ministry and the PM’s office on the matter. These companies are among those power producers who commissioned their plants by December 2011. But the fresh ministry directive asks CIL to sign agreements with power companies who will commission plants till March 2015. This means coal supplies for an additional 40,000 mw of power.

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CIL Chairman S Narsing Rao told Firstpost on Tuesday that of the first batch of 48 FSAs only 14 had been signed and not a single company, with whom FSAs have not been signed, had written to CIL explaining its stand on the matter. NTPC, Damodar Valley Corporation and other large power public sector companies are holding out and so are a majority of the others, including some private power suppliers. They all want the penalty clause to be more stringent on supply shortfalls and coal supplies to be made to plant sites instead of ports.

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NTPC also wants coal to be supplied according to the older Useful Heat Value (UHV) norm instead of the Gross Calorific Value (GCV) method CIL has adopted now.

Narsing Rao also made it clear that the penalty clause - 0.01 percent at present - cannot be altered since it has been endorsed by the company’s board of directors. Also, earlier, there was less incentive for coal companies to improve the coal quality because there were eight large bands but now 17 bands have been created, which would mean NTPC gets access to better quality of coal, Rao said.

So what’s the way out?. Rao says in case coal supplies fall short of demand, CIL subsidiaries could check with customers (power companies) and import the requisite quantity of coal. “The FSAs anyway provide for imports in case of supply shortfalls. In case the customer wants, we could fulfil the demand through coal imports. But as of now, we don’t have estimates of how much coal will need to be imported. It will be worked out in due time”.

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So if the import option exists, why are power companies playing truant? The answer is simple: prices of imported coal are multiple times the price at which CIL will supply its own coal so that power companies are justifiably wary of such a move.

Rao said his company was thinking over whether to set a deadline for the remaining power companies to sign FSAs. It is already known that Coal India will need incremental production of at least 64 million tonnes this fiscal to fulfil its obligations under the 48 FSAs to be signed in FY13. As per a Presidential directive, CIL has to sign FSAs with those power producers whose plants were commissioned between March 2009 and December 2011.

But since CIL managed only 24 million tonnes of incremental production in FY12, the target of 64 million tonnes in a single year certainly looks ambitious. Also, this target for FY13 has been arrived at after taking the 80 percent trigger level into account (i.e. no penalty has to be paid by CIL if it supplies 80 percent of contracted quantity).