Coal India, NTPC to sign fuel supply pacts as quality row cools

By Malini Menon

NEW DELHI (Reuters) - Coal India Ltd will on Wednesday sign new supply agreements with NTPC Ltd , its top customer and the country's largest power producer, officials at the two companies said, ending months of disputes over fuel quality and payments.

The move lifts the spectre of mass blackouts as well as a possible shelving of mine expansion and follows the signing of supply pacts to two power plants in eastern India, which were at the heart of the dispute.

The row had highlighted the difficulties India faces in extracting coal quickly and efficiently enough to eliminate power shortages and reduce its reliance on costlier imports.

"We are signing FSAs (fuel supply agreements) tomorrow (with NTPC)," Coal India chairman S. Narsing Rao told reporters, adding about eight such deals for generating about 4,000 megawatts of power would be signed.

"We have already signed two for Farakka and Kahalgaon," he said, referring to the two plants in eastern India run by NTPC.

The miner's Eastern Coalfields Ltd (ECL) subsidiary had in April threatened to halt supplies to these two plants after the latter stopped paying the full price for shipments.

ECL supplies coal from its Rajmahal mine in Jharkhand state to the two plants. It plans to increase the mine's capacity to 17 million tonnes from 14 million, but this expansion had been threatened by the non-payment, its chief R. Sinha warned in April.

NTPC gets the bulk of its coal through long-term FSAs with Coal India. But the power producer has long complained it is forced to accept coal that is heavily adulterated with rocks and stones.

Rao said the fuel quality row was "kind of sorted out".

Both coal supplier and power producer now jointly monitor coal quality, opening up the possibility of wrangles over its true worth, but the government plans to change that by mandating a third party to judge value.

"There is some understanding between NTPC and us (as to) ... how do we solve this third-party evaluation and extrapolation into the period from when they started to reduce the payment," Rao said. "Reduced payments affected us from October onwards."

The miner has 40 billion rupees in outstanding dues with NTPC, Rao said.

Of the 492 million tonnes that Coal India aims to supply in 2013/14, more than three quarters will be supplied to the power sector.

The power producer requires 160 million tonnes of coal in the fiscal year to March, of which it will import 16 million tonnes, said an NTPC official who did not wish to be named. (Editing by David Holmes)