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Coal ministry does away with policy on supply cancellation

Friday, 24 January 2014 - 7:12am IST | Place: Kolkata | Agency: DNA

Coal India Ltd (CIL) has decided to do away with a restricted policy of deciding on its own to cancel supplies if there is change in ownership of a plant using coal, merger, takeover or even if name of the company is changed.

Such decisions, if considered important in specific cases, would now be taken by the coal ministry.

“Board after detailed deliberations decided to refer such cases to Ministry of Coal, which had issued recommendations for issue of Letter of Assurance for its consideration as brought out in the agenda note and such action should be kept out of purview of fuel supply agreement (FSA).

Accordingly, where there is change in ownership or shareholding pattern of the power producing companies, the cases shall be subjected to directives from the ministry,” Coal India has said.

The policy, once implemented to prevent trading of Letter of Assurances or Fuel Supply Agreements, has turned into a stumbling block for the industry.

Current fuel supply pacts stipulates that power plants have to declare that there has been no change in ownership pattern or that the company has not been taken over or merged with other entities since the time of the issue of LoA till the time of signing of FSAs.

CIL’s decision is a result of a move by the coal ministry to revisit the desirability of an existing practice of cancelling supplies or making power companies draw up supply pacts again when there is a change in ownership of a power project.

The ministry, in fact, floated a discussion paper on January 16 to decide on a policy in light of global realities in coal availability and supplies.

While CIL wouldn’t be taking a decision on such issues henceforth, the discussion paper mentions that the policy to be finalised shouldn’t allow continuation of supplies if the original project promoter divests majority shareholding in the company without achieving significant level of investment in the project.

“While there is a need to ensure that coal linkage granted to a developer is not traded for business purposes and is used only for bona fide purpose, it is also necessary that the measures adopted by the ministry to prevent such profiteering doesn’t hamper equity investment in the developer company,” the discussion paper said.

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