Beleaguered power producers received a shot in the arm after the Government asked Coal India Ltd to sign long-term fuel supply agreements (FSAs) for both existing and upcoming projects. The directive will benefit power plants totalling a capacity of over 50,000 MW.
Meeting pays
Grappling with erratic coal supplies, power producers led by Mr Ratan Tata and Mr Anil Ambani recently met the Prime Minister, Dr Manmohan Singh, seeking his intervention to sort out coal-shortage issues. This decision is the outcome of the meeting of the Committee of Secretaries set up by the PMO to look into the power sector woes.
Coal India has been asked to sign 20-year supply contracts with power plants that will be commissioned by March 2015 and also with those plants that already have power purchase agreements with the distribution companies, a statement from the PMO said.
For power plants commissioned up to December 2011, Coal India will sign the FSAs before March 31, 2012.
The last such agreement signed was in April 2009 after the state-run entity said it could supply only 50 per cent of the required quantity.
Coal India will get incentives for meeting 90 per cent of the committed supplies as per the letter of assurance (LoAs).
On the other hand, the company will face penalties if it fails to supply 80 per cent of the committed quantity. However, the nature of incentives or disincentives was not disclosed.
Will arrange supply
“In case of any shortfall in fulfilling its commitment under the FSAs from its own production, Coal India will arrange for supply through imports or through arrangement with State/Central PSUs that have been allotted coal blocks,” the statement said. Tracking the news, the BSE Power Index that consists of some 19 companies, gained 3.6 per cent on Wednesday. Adani Power and Reliance Power scrips gained the maximum of around 13 per cent each. Coal India ended 1.45 per cent higher.
“It's a very big step forward as the long-standing concern of the sector is being addressed. It will bring back investor confidence in the power sector,” said Mr Ashok Khurana, Director General of Association of Power Producers. Capacity of about 20,000 MW has already come up since 2009 and the units are operating at a suboptimal level due to coal shortage.
Another 30,000 MW, entailing an investment of Rs 1.5-lakh crore would be added by 2015, Mr Khurana said.
Coal India, which accounts for 80 per cent of the country's output, has been struggling to increase its production, constrained as it is by land acquisition and environmental issues.
The company, which failed to meet its production target last year, has made an unsuccessful attempt to import coal on a long-term basis.