CIL removes all restrictions on coal purchases, demand to dictate supply

Ends nearly 20-year practice of supply based on contracted capacity

National miner Coal India Ltd (CIL) has lifted all restrictions on the amount of coal that power generation units can procure, allowing power plants with fuel supply agreements (FSA) to acquire as much fossil fuel as they need. This marks a shift from the previous system, where CIL supplied coal based on the annual contracted quantity (ACQ) agreed upon with each power plant.

In a statement released on Tuesday, the company announced: "CIL has paved the way for allowing supplies beyond ACQ to thermal power plants of the country, including independent power plants (IPPs) or privately owned units. This applies to the gencos which have signed the FSAs embedded with such an enabling clause.”

It further noted that in the last week of June, CIL’s board approved the removal of supply caps beyond the ACQ for “ease of doing business” and “simplicity”, and to avoid “duplicity of work”.

Coal will be provided at the same price as stipulated in the respective FSAs, said a CIL executive.

Previously, CIL allowed coal supplies up to a maximum of 120 per cent of the ACQ to power plants and IPPs. The concept of ACQ was first introduced under the New Coal Development Policy in 2007, which initially capped coal supply at 80-90 per cent of a power plant’s requirements. This threshold was raised to 100 per cent in 2022-23, and in 2023-24, it was further increased to 120 per cent due to CIL’s surplus coal availability.

The company highlighted that the new policy will benefit power plants seeking to “lift higher quantities of coal beyond their stipulated ACQ”, while also enabling CIL to increase its coal supply at a time when demand shows signs of slowing.

This simplification would benefit the power plants and boost CIL’s supplies, the statement added.

In an interview with Business Standard last month, CIL Chairman and Managing Director P M Prasad stressed that volume maximisation is a key strategy for the company to enhance its revenue. “Volume growth in sale of coal maximises our revenue because major cost is fixed and any increase in sales is advantageous,” he said.

CIL’s pitheads currently hold a coal stock of 72 million tonnes -- 47 per cent more than the 49 million tonnes as on August 12, 2023. The national average coal stock with power plants has reached a 14-day supply, a significantly high figure for monsoon months. 

Currently, coal-generated electricity satisfies India’s 75 per cent power demand. In recent years, India's power demand is incresing in the range of 6-8 per cent annually and this incremental demand is being met by thermal power units.  

In 2023-24, CIL supplied 101.6 per cent of the projected coal demand, registering a 5.4 per cent growth in coal supply over the previous financial year. Of the 153 domestic coal-based power plants in the country, CIL has long-term linkages with 127 plants, covering 592 million tonnes, including 50 IPPs.