Post-CAG fiasco, CIL defers nod on supply pacts with power companies

Coal India’s board has cautiously deferred the approval of fuel-supply agreements (FSA) with power firms as its directors decided to scrutinise the details of the issue which can expose the state-run giant to heavy penalties.

The prime minister’s office (PMO) has asked Coal India to sign the agreements by the month-end. The board held a marathon 5-1/2 hour meeting in Delhi on Thursday, ironically on the day the government was in a tizzy after a leaked CAG report estimated that allocation of coal blocks led to a revenue loss of over Rs 10 lakh crore. Bureaucrats in several ministries say they need to be very cautious in the current climate as they fear they may face investigations.

Analysts say the signing of FSAs will force Coal India, which is running short of coal, to resort to costly imports at a time investors are already worried about the government’s refusal to allow them to charge market rates.

After the board meeting, a Coal India director had a long interaction with the coal ministry, discussing issues till 8:30 pm. The board will meet again next week but analysts feel Coal India might not be able to sign agreements with all of the 65-odd power units by March 31, 2012. Coal India’s acting head Zohra Chatterji told ET that the board was thoroughly examining various issues of the FSA. “It is a long and complex document and we are going through it in detail. We will meet next week to finalise it.” On the trigger point for the FSAs, she said: “The government has asked us to go by 80% and we will stick to that.”

The trigger point in an FSA refers to the commitment to supply certain volume of coal to consumers, below which the supplier pays a penalty. According to the draft FSA, Coal India would have to pay a penalty if it fails to supply less than 80% of the agreed volume of coal, and would be given an incentive to supply over 90%. The penalty and the incentive both will be 10%.

Analysts feel the company may not be able to complete the process by the end of the month – the deadline set by the PMO. “Since Coal India has not been able to finalise the FSAs till now, it looks unlikely that the company will be able to complete the process by this fiscal as asked by the PMO. There are seven subsidiaries and more than 60 power units,” Rajesh Agarwal, head at Research at Eastern Financiers Ltd said.

A former chairman of Coal India said: “They should start the process of signing of fuel- supply agreements late this month which in itself will try to uphold the spirit of the directive from the PMO.”

Ashok Khurana, secretary, Association of Power Producers, said: “FSAs are generally a few page documents and after it has been finalised, it will take only a couple of hours for us to see if it suits us. However, if we disagree with some portions of the agreement, we will have to meet Coal India officials to discuss and if possible, amend portions of it.”

Task can be Achieved: CIL

Coal India officials, however, feel it is an achievable task and they will be able to complete it well in time. “All CIL subsidiaries will have to sign physically with the power units. We will have to make a serious attempt to complete the process,” N Kumar, director technical at CIL said.
Source: ET


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1 Response

  1. raj says:

    call back all th ecoal stockks with power plants

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