Ministry asks CIL to examine contentious FSA issues

Power companies have refused to ink fuel supply pacts with the miner due to insertion of new clauses

The Coal Ministry has asked Coal India to examine issues, including changes in penalty clause, raised by the power producers regarding the model fuel supply agreement.

The move comes against the backdrop of NTPC and many power companies refusing to ink fuel supply pacts with Coal India Ltd (CIL), disagreeing with introduction of new clauses.

In a letter to the Coal Ministry dated May 18, the Power Ministry flagged concerns raised by power producers regarding the model Fuel Supply Agreement (FSA).

The Power Ministry also requested the Coal Ministry to ensure that CIL inks fuel pacts with power companies within a month based on 2009 model FSA, by only changing the minimum supply level to 80 per cent.

Following the communication, Coal Ministry on May 22 shot off a letter to CIL seeking comments on the FSA-related issues.

"It is requested that issues raised by the Association of Power Producers and the Ministry of Power on the model FSA may be examined and the comments of CIL sent to the ministry positively by Friday, May 25, to enable us to examine the matter further," said the letter.

Among others, the new FSA states that CIL is not liable to pay penalty for the first three years (from the date of signing the pact) even if there is supply shortfall. This as well as clauses related to 'force meajure' and compensation for stone content in the fuel, are being opposed by power companies.

As per the May 18 letter from Power Ministry, the model FSA which has been finalised by CIL has diluted the disincentive to such an extent that it would have no impact on CIL in the event of non-supply of coal.

The disincentive starts only after three years and that too had been reduced to a mere 0.01 per cent, the letter had pointed out.

"In the earlier FSAs, in case of any disagreement between the developer and CIL, the issues were to be referred to the Government of India whereas now CIL would decide the issue on their own and in case of disagreement, the coal supply will be discontinued," it had said.

Further, the letter had also urged the Coal Ministry to instruct CIL to sign FSAs within a month based on the model FSA signed in 2009 with only change in trigger level at 80 per cent.

Last week, NTPC Chairman and Managing Director Arup Roy Choudhury said the company would sign the FSA only with a change in the trigger point, "because that is the direction given by the government. Why should I accept 10 or 15 more changes".