The government on Friday asked state-owned Coal India (CIL) to consider diluting the contentious penalty provisions in new supply pacts being signed with power companies. However, as compensation, CIL has been allowed to commit a lower supply level. Power companies, however, critisised the move.
“The meeting (over the coal supply logjam) discussed allowing CIL to reduce the commitment level to 65 per cent of the annual contracted quantity for the first three years, 72 per cent for the third year and 80 per cent for the fifth year. Also, it has been considered to ask CIL to end the three-year moratorium and increase the penalty,” said a source privy to the development.
Coal Secretary S K Srivastava said a final decision on the matter would be taken by the Coal India board in its meeting next month. On Friday’s meeting over the supply logjam was attended by prime minister’s Principal Secretary Pulok Chaterji, coal ministry’s adviser and former secretary Alok Perti, Coal India Chairman S Narsing Rao, and Srivastava.
The power industry, upset over on Friday’s decision, said its effects could be disastrous. Ashok Khurana, director-general, Association of Power producers, said, “65 per cent of the 85 per cent supply committed under the letter of assurance would imply a plant load factor of 55 per cent, far below the normative availability factor of 85 per cent. If this measure is not accompanied by bulk imports, price pooling and rate revisions, the outcome would be disastrous for the power sector.”
While CIL had earlier said it would supply 80 per cent of power companies’ requirements in new fuel supply agreements (FSAs), it had also stated the condition of a penalty of 0.01 per cent of the value of the shortfall and a three-year moratorium on the penalty in the FSA document. This had miffed power companies, which had sought the intervention of the Prime Minister’s Office (PMO).
The penalty provision has deterred power firms from accepting the new FSA format. CIL has however, managed to sign FSAs with 27 power companies.
CIL’s 80 per cent supply commitment, provided in the current FSA format, translates into a plant load factor of 68 per cent for power generators. Coal availability, at 65 per cent, would result in a low plant load factor of 55 per cent, at which the power regulator would not allow developers to recover fixed costs. Projects, therefore, run the risk of defaulting on power purchase agreements and turning into non-performing assets, unless the shortfall in CIL’s commitment is met through imports.
Other issues discussed in on Friday’s meeting were the price pooling of costly imported coal in case of a shortfall, the new policy of auctioning coal blocks and the cancellation of allocations in which production was delayed.