CIL board clears draft fuel supply agreement

Coal India’s top management on Wednesday approved the draft of the fuel supply agreement (FSA) to be signed with a host of power plants after a detailed meeting between its chairperson Zohra Chatterji, executive directors and the heads of its seven subsidiaries.

The draft FSA has now been given to the legal team of Coal India for vetting. After the legal department approves it without changes, the draft will again be placed before the board for its final nod, said an official.

Chatterji discussed in detail the features of the FSA with the chairpersons and managing directors of its subsidiaries as they have to now sign the pacts with individual power plants.

The government on Tuesday issued a Presidential directive to Coal India to sign FSAs with power producers for at least 80% of their requirements over 20 years.

Any shortfall in commitment would attract penalty, which, according to analysts, could be over Rs 100 crore. As such, the company has already missed the March 31 deadline set by the government for signing the FSAs after some of its independent directors disagreed on the penalty cause.

While the details of the FSA are yet to emerge, it appears that a long-held fear among the investors is coming true — that Coal India will divert some of the coal kept aside for the high margin e-auction to the power sector in an effort to honour commitments under the FSAs, an official of the public sector coal mining major told DNA after the meeting.

While the government had already committed to the power producers — whose list was earlier sent by the Prime Minister’s Office to Coal India — that at least 80% of their fuel need for 20 years would be met, the board was left with the flexibility to decide the finer details like how much penalty it is willing to pay in case of default, and also how to arrange for the extra coal required.

With just 1% production growth in 2011-12, at 435.84 million tonne, following nil growth the previous year, Coal India has realised that it has little headroom in ensuring higher supplies to the power sector at prices 70% lower than ruling global market prices unless the more profitable e-auction route is abandoned to a large extent.

“We have to shift some of the coal meant for e-auction to the power sector. It is no more feasible for us to keep selling 10% of our annual production via the e-auction route like we have been doing for the past two years. We have to now bring it down progressively, to 7% to begin with, as it would be difficult to cope with the increased demand after all the FSAs which we will now sign come into effect,” said the Coal India official.