Coal India has decided to allow credit period of 10 days for its customers from the non-regulated sector like steel, cement, aluminium and others who had to pay the full amount upfront before any despatch could be made.
This will, the company believes, not only help Coal India increase its offtake, but it will also address working capital constraints of the consumer firms.
According to a Coal India official, working capital blockage in coal movement by railways had been restraining the consumers’ financial health, which now could be addressed by allowing a credit period.
Earlier, a significant amount of money deposited by non-power sector consumers against coal, despatched by the rail mode, was locked up in the form of an advance and the same could not be utilised by the steel and other non-power companies in subsequent coal purchases.
Under this mechanism, coal consumers from the non-regulated sector (NRS) need to furnish a bank guarantee of the amount of purchase and it has to be replenished from time to time as despatches are made. In this case, an Irrevocable Revolving Letter of Credit will be issued for coal supplies through rail mode under Fuel Supply Agreements (FSA) executed through linkage auctions to the customers and this can be used to avail credit.
“With the introduction of this relaxed norm, NRS customers can breathe easy and this move will help in sustaining their growth as well”, a Coal India official said.
Previously, this facility was available only to the power generating companies which enjoyed a 10-day credit period.
During 2018-19 around 73 million tonnes (mt) of coal was supplied to NRS sector under FSA out of a total coal off-take of 608 mt.
The move comes in the wake of the Maharatna company registering a dip of 7.6 per cent in its total sales volume which some officials attributed to lower demand from the power sector.
In fact, power generation in the country fell by over 12 per cent to 98,887 million units (MU) during October this year primarily owing to the reduction in demand from agricultural activities and cooling requirements in the commercial sector. During October 2018-19, power generation in the country had stood at 1,13,507 MU.
In another step, Independent Power Producers (IPPs) have been allowed Inter-Plant Transfer of Coal which allows them the transfer of coal provided the plant is a wholly-owned subsidiary or wholly owned by the common holding company.
This facility too was earlier confined only to central and state-owned generating companies.
According to a Coal India official, it effectively means that if an IPP entity owns two different plants and has two separate FSAs in place, they can transfer coal from one plant to another plant, owned by them, to improve efficiency in generation and reduce the cost of coal. This would also reduce the transportation cost and take the load off on the railways during peak season.
The transferee plant, however, is required to provide an affidavit to Coal India affirming that the additional coal supply beyond the annual contracted quantity of coal shall only be used for generating power for distribution under long term PPAs with power distribution companies.