The fuel supply tussle between Coal India Ltd (CIL), the near-monopoly producer, and power companies today moved a step closer to an end after the board of the state-owned miner relented on the contentious issue of a penalty in new supply pacts.
The board also gave its approval to the proposal of price pooling of coal that would be imported to meet the domestic shortfall. This would lead to a price increase of around eight per cent in domestic coal-based power rates.
The company agreed to increase the penalty in case of shortfall in delivery, from 0.01 per cent in the current fuel supply agreements (FSAs) to a range between 1.5 per cent and 40 per cent at its meeting today. “Coal will be supplied at the 80 per cent trigger level (meaning a commitment to 80 per cent of the quantity contracted), with a mix of domestic and imported coal,” Chairman S Narsing Rao said after the meeting.
|VALUING THE BLACK DIAMOND
The penalty on CIL would be a percentage of the value of coal not supplied
50 and 60%
|60 and 65%
|65 and 80%
CIL would pay a penalty of 1.5 per cent of the value of shortfall between 80 per cent and 65 per cent of the annual contracted quantity, five per cent of the value of shortfall between 65 per cent and 60 per cent, 10 per cent for shortfall between 60 per cent and 55 per cent, and 20 per cent for short supply of between 55 per cent and 50 per cent. Shortfall below 50 per cent would attract a penalty of 40 per cent.
Rao also said with the board’s approval for pooling, the miner would initially meet requirements of imported coal through the Minerals and Metals Trading Corporation Ltd and State Trading Corporation.
“Later, we will start importing ourselves. The Central Electricity Authority has advised us to import 20 million tonnes (mt) coal this financial year and 33 mt next fiscal,” Rao said.
The company’s board had last week approved supplying coal to power companies at an 80 per cent commitment level after the Prime Minister’s Office’s intervention in the coal supply logjam. Notably, CIL had last month only proposed keeping the commitment level at 65 per cent for the first three years of supply and gradually increasing it to 80 per cent in the fifth year.
Power companies which were satisfied with CIL board’s approval for the pooling mechanism said pooling would not dent their incomes. “Cost of generation will go up. But if my buyer is ready to absorb that cost, I would have no problem,” Arup Roy Choudhury, chairman of state-owned power generator NTPC Ltd, said. “I hope the central government takes on board the state governments before implementing this proposal,” he added.
So far, CIL has already signed FSAs with 29 of the 49 power stations commissioned after March 2009. Today’s decision would allow more FSAs to be signed. The revised penalty clause would be also applicable to the 29 power stations which have already signed FSAs.