Coal India board approves FSA, beats down penalty

The overhang of fuel supply agreements (FSAs) and penal action over Coal India may have lifted.

After eight hours of deliberations on Monday, the company’s board of directors approved the draft of the FSA to be signed with power plants. But contrary to fears, the coal monopoly is nowhere near being singed.

“We have agreed upon a document and we will be signing the FSAs before April 20, the time limit given to us, which is within 15 days from the issue of the directive,” Coal India chairperson Zohra Chatterji told reporters after the board meeting in Kolkata.

In a victory of sorts for the company’s independent directors, who had opposed the clause levying a huge penalty on Coal India in case its supplies fell below 80% of the amount contracted to power plants, the FSA approved has almost done away with the risk.

From an earlier 10%, the penalty is now down to just 0.01% of the shortfall amount.

What’s more, the penalty clause would get triggered only after three years from the date of signing of the FSAs, said Chatterji, without elaborating.

Further, there wouldn’t be any cutback on the amount of coal put into e-auction and sold at prices significantly higher than those charged from customers like power and steel producers.

“E-auction would continue at the present level for the time being,” said Chatterji.

A communication from the Prime Minister’s Office to the Coal India chairperson had proposed to reduce the e-auction amount from 10% of total production to about 7% initially to boost supplies to the power sector.

As reported earlier by DNA Money, while the government already committed to the power producers 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 they were willing to pay in case of a default, and also how to arrange for the extra coal required.

On imports, Chatterji said Coal India is yet to take a call. “It has to be decided later as to how the imports are to be handled as and when that is required. Imports could be one of the ways of meeting the shortfall, but It has to be decided upon as a separate issue later.”