Delay in fuel supply pact to hit coal consumers

The delay in signing of the Fuel Supply Agreement (FSA) between the state run Coal India Limited (CIL) and its consumers across different sectors over the contentious issue of imported coal clause is likely to take its toll on the consumers.

The coal consumers who have already been issued Letters of Assurance (LOAs) by CIL and have furnished the requisite bank guarantee for signing the FSA are staring at the possibility of forfeiting the amount.

The validity period of LOAs of most of the coal consumers would terminate within a month or two and the FSA needed to be signed before this period. As per the New Coal Distribution Policy (NCDP), the LOA issued to the coal consumers was valid for one year and its validity could be extended by four months

As a pre-condition to signing the FSA, the coal consumers who have been issued LOAs were required to deposit six per cent of the notified base price of the annual contracted quantity of coal under FSA in the form of bank guarantee.

“The validity period of the LOAs of most of these coal consumers would expire within a month or two. CIL needs to understand the plight of the coal consumers and expedite the process of signing the FSA”, said an industry source.

All these coal consumers have achieved the minimum stipulated milestones as laid down in the NCDP after being issued the LOAs by CIL and they fulfil all the eligibility criteria for signing the FSA, the source claimed.

The coal consumers have alleged that CIL was yet to give a firm commitment on the waiver of the imported coal clause in the LOA which is considered to be the bottleneck in signing of the FSA.

According to this imported coal clause, it was mandatory for the coal consumers to purchase a mix of imported and domestic coal at prices fixed by CIL. The coal consumers objected to the clause stating that buying imported coal was commercially unviable for them.

In a meeting with the coal consumers held in March this year, the top management of CIL had assured to relax the imported coal clause. However, the coal consumers said CIL merely gave a verbal assurance and there was no written commitment by the coal PSU (public sector undertaking) in this connection.

When contacted by Business Standard, a senior CIL official said, “We have already given an assurance to the coal consumers that the imported coal clause would be relaxed. The FSAs would be signed with the consumers after their coal linkages are approved by the Union coal ministry.”

It may be noted that by the end of March this year, 1168 out of the 1223 linked coal consumers had inked the FSA with CIL. The consumers who have signed the fuel pacts with the coal major are in sectors like captive power plants, sponge iron, cement, paper and aluminium to name a few.

As per the NCDP, consumers with a coal requirement of more than 4,200 tonnes per annum were eligible to enter into FSA with CIL.