CIL board finally clears FSAs with revision in penalty clause

Approves minimum 80% coal supply to power firms agrees to import 15% to meet shortfall

Coal India Ltd (CIL) on Tuesday decided to revise the contentious penalty clause in the fuel supply agreements (FSAs) to be signed with power firms. The state-run company also agreed to supply at least 80 per cent of the required fuel to power firms. It would meet the production gap through imports, amounting to 15 per cent this year.

“We are revising the FSAs drafted in mid-April; the trigger remains same, at 80 per cent. There are changes in the penalty side. We have proposed some changes and we will meet again soon to finalise these,” Chairman S Narsing Rao said after the company’s board meeting here. He, however, refused to share the details of CIL’s proposals on the penalty clause.

Prices of imported and domestic coal would be pooled to supply coal at an average price to power generation utilities.

“We have agreed to import. Import is practicable when there’s pooling. The percentage of import varies from year to year. This year, it would be 18-20 million tonnes. Of our supplies, 65 per cent would be domestic coal and 15 per cent would be imported. There is a broad agreement on pooling, but the nitty-gritties need to be finalised,” Rao said.

The penalty clause, as well as the details of the price pooling would be finalised in the next board meeting, likely within the next 15 days.

According to a Presidential directive to CIL, it has to sign FSAs with power plants commissioned between April 2009 and December 2011. A committee of secretaries, under the principal secretary of the Prime Minister’s Office (PMO), also wants CIL to sign FSAs for all power projects scheduled to come up by March 2015. So far, CIL has signed 15 FSAs with companies such as Reliance Power, Lanco, etc. However, the FSA with NTPC, the country’s largest power producer, has been stuck, owing to the power public sector undertaking opposing provisions in the draft.

Under the terms of the draft FSAs, CIL has to ensure at least 80 per cent of coal supply to power producers or pay a penalty of 0.01 per cent. Power producers had opposed the low penalty and the provisions that granted a three-year exemption from paying penalties.

Citing production constraints, CIL said it was not comfortable with the 80 per cent trigger. It had sought a 65 per cent threshold.

The Prime Minister’s Office had recently stepped in to resolve the differences between CIL and power companies, including state-owned NTPC, over certain clauses in the FSAs. The delay led to low coal supplies and adversely affected power generation.