Coal India, Centre work on compromise

The Coal India (CIL) board and the government are believed to be working on a compromise formula for arriving at the model fuel supply agreement (FSA) with power utilities which might significantly cut down the compensation that the miner would have been liable to pay for failing to supply the contracted amount.

By lowering the compensation payable, Coal India, besides honouring the commitment made by the Prime Minister’s Office (PMO), would be able to restrict its financial liability in the eventuality of failing to meet supplies, sources in Coal India told DNA after the crucial board meeting which ended in Delhi on Thursday.

“While the trigger level might be retained at 80%, the level of compensation might be brought down to just 1% of the failed supply,” the official, who refused to be named, said.

While several independent directors on Coal India’s board objected to keeping the trigger level at 80%, the board decided not to bring it down as it has already been committed by the PMO.

“The FSAs will be signed for full quantity of coal mentioned in the Letters of Assurance for a period of 20 years with trigger level of 80% for levy of disincentive and 90% for levy of incentive,” a release from the PMO issued on February 15 had said.

Instead, the compensation, currently at 10% of the failed quantity calculated at the weighted average of the base prices of the grades of coal supplied (grades have now been converted into bands of calorific values) might be brought down to 1%.

Officials, however, added that other options could also be explored at the insistence of the government though they added that tinkering with the trigger level might not find favour.

Coal India would be submitting a report to the government on the deliberations by the board conducted over Wednesday and Thursday and would seek its consent before Coal India’s different mining subsidiaries start signing the FSAs with the power producers. Whatever might be the scenario, Coal India, in all likelihood, is set to miss the deadline of March 31 earlier set by the PMO for signing pacts.

For power plants that were commissioned by December 2011, FSAs should have been signed by March-end, the PMO statement had said.

Coal India might miss the deadline to strike the FSAs but it now appears that it has just found a way to spare itself a harakiri.