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Coal India may offset penalty with ‘as-is’ offer

Monday, 11 February 2013 - 3:00am IST | Place: Kolkata | Agency: dna
If a mine faces shortfall but other CIL mines have coal stocks, then buyers are given an option to lift the fuel from the latter, not at the FSA-stipulated price but at a much higher level.

It seems Coal India Ltd (CIL) has found an ingenious way to neutralise the contentious penalty clause in its mine-wise fuel supply agreements (FSA) with various buyers.
The FSA stipulates that if a CIL mine fails to supply 80% of the annual contracted quantity, it would be liable to pay a penalty. (But this liability will take effect after several years due to the built-in moratorium.)

But CIL is not taking any chances, it appears. If a mine faces shortfall but other CIL mines have coal stocks, then buyers are given an option to lift the fuel from the latter, not at the FSA-stipulated price but at a much higher level.

For instance, CIL’s subsidiary Mahanadi Coalfields Ltd (MCL) has offered captive power plant (CPP) customers who have been supplied only 50% of the contracted amount the option to lift the rest from two other CIL mines, (Balram and Basundhara) on ‘as is where is’ basis. (The as-is practice began June last).

Now, the basic price (excluding taxes and levies) fixed for Balram’s coal is Rs990 a tonne for coal with a gross calorific value of 3,401-3,700 kilo calorie per kg, much higher than Rs730 per tonne, the price notified in January 2012.

Worse, CIL customers who opt for this offer, will also have to arrange to lift the coal from the mine site themselves. CIL officials attributed this conditional offer to the paucity of railway wagons which, they said, has made it uneconomical for the company to supply coal to loading points.

For buyers, factors like the distance between CPPs and mines, and import price of coal, could well add to the overall cost of lifting coal from other mines. It is not clear how much stock is available at CIL’s Balram and Basundhara mines, whether MCL’s buyers are desperate enough to take up CIL’s as-is-where-is offer, and how much the premium over normal price now would offset the penalty in future.

When CIL mooted the as-is plan last year, it had 70 million tonne (mt) of stock at its mines. In the first ten months of this fiscal, CIL has been able to sell 24 mt via this route.
Till September, Coal India was receiving an average 171 rakes a day from Indian Railways. Things have improved since then; in January, daily rake availability crossed the 200 mark. This is expected to help the miner to achieve its target (which is, supply of 347 mt to the power sector during 2012-13), according to a Morgan Stanley report.




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