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Coal supply to be suspended if power companies violate FSA

Coal India is preparing to ink pacts with about 40 power firms

Press Trust of India  |  New Delhi 

Power firms entering into a pact with state-owned CIL for a minimum assured quantity of coal will face suspension of supply if found diverting the dry fuel for any purpose other than for the specified end-use plant.

"The purchaser shall not sell/divert and/or transfer the coal to any third party for any purpose whatsoever and the same shall be treated as material breach of agreement...And such act shall warrant suspension of coal supplies by the seller," says the new model fuel supply agreement (FSA).

Coal India Ltd (CIL) is preparing to ink pacts with about 40 power firms, having a capacity of less than 30,000 MW, for supply of at least 80% of the committed quantity after its board last week approved the signing of FSAs.

As per documents, FSAs also provide for suspension of supply in case purchasers fails to increase the security deposit on increase of base price of coal.

"The value of security deposit shall be increased/ decreased to match the changes in the base price notified by the seller from time to time. In the event of failure... To provide such increase value within 30 days from the date of notication..., the seller shall have the right to suspend the coal supply, the FSA said.

The purchasers are required to make a security deposit equivalent to six% of the base price of the coal.

On import provisions to meet the shortfall in coal supply, the new pact said if the quantity offered under it "is not accepted by the purchaser, no penalty shall be applicable for the shortfall".

It added, "...The seller shall have at its own sole discretion, the option to supply the balance quantity of coal through import to be delivered at unload port at cost plus pricing including services charges of CIL".

The model format includes clauses like 80% trigger level and penalty of 0.01% in case of failure to adhere to it.

The FSAs which were signed before 2007 had clauses like 10% penalty and 90% trigger level, an official in Coal India said.

The government had issued a directive on April 3 to CIL to commit a minimum quantity of fuel supply to power producers.

The directive was issued following a meeting between the power sector honchos and the Prime Minister's Office.

Independent directors had objected to any government direction to CIL, which is listed on the stock exchanges.

Meanwhile, CIL, according to a Coal Ministry official, had last week dispatched model agreements to its seven coal producing subsidiaries.

The subsidiaries includes Eastern Coalfields, in West Bengal, Bharat Coking and Central Coalfields, both in Jharkhand,) South Eastern Coalfields, in Chattisgarh, Western Coalfields, in Maharashtra, Northern Coalfields, in Madhya Pradesh and Mahanadi Coalfields in Orissa.

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First Published: Tue, April 24 2012. 15:48 IST