FinMin opposes coal to power plants not having FSA

The Finance Ministry has opposed a proposal to supply domestically produced coal to power plants that do not have a fuel supply agreement (FSA) saying it will not be prudent for Coal India Ltd to make further commitments when it is unable to meet existing ones.
In its comments on power ministry's draft note for supplying coal to power plants commissioned after 2009, the Finance Ministry, according to sources, has stated that the proposal presents a moral hazard of treating entities that had come up without fuel supply commitment on par with those that had such commitments.
The Power Ministry had proposed that coal be supplied by Coal India Ltd (CIL) to plants that have come up or are about to be commissioned, without any prior commitment of coal. It had proposed to supply coal to the extent of 50 per cent of the requirement to plants with aggregate capacity of about 18,000 MW.

Sources said the Finance Ministry has suggested that power plants that have signed agreements to supply power on a cost-plus basis should be supplied domestic coal by CIL on best effort basis. Any shortfall may be supplied by CIL through imports.
In case of plants that have come up on biddable tariff basis and other units, coal should be e-auctioned by CIL.
Sources said the Finance Ministry suggested that CIL should provide coal on 'best effort basis' to those thermal power projects which have signed fuel supply agreement (FSA) with the state-run firm and have Power Purchase Agreement (PPA) in place.

CIL would source imported coal as well for the purpose and the rate of such supplies would be the resultant pooled price.

The Finance Ministry made the suggestion because CIL is unable to meet its annual FSA commitment. And as FSAs are legally binding documents any slippage in commitments could leave CIL open to legal action.
In August, Power Ministry had floated a Cabinet note for pooling of imported and domestic coal for deciding the price of the raw material for plants commissioned after 2009, a proposal aimed at meeting increasing demand for the dry fuel.
As per the Power Ministry estimates, if the pooling is confined to post-2009 plants the resultant increase in per unit cost of power generation is expected to be 74 paise for 2014-15, 44 paise for 2015-16 and 5 paise for 2016-17.

The ministry has also sought an appropriate decision on the coal imports and its price pooling.
The net coal requirement works out to about 433 million tonnes (MT) in the current year, about 500 MT in 2015-16 and about 548 MT in 2016-17.
As per latest official data, as many as 47 thermal power stations in the country, of the total 104, have less than a week's stock at their disposal.