The Government today directed Coal India Ltd to sign 20-year fuel supply agreements (FSAs) with power producers within a week.
Presidential directive
A ‘Presidential directive' was issued to CIL asking it to sign FSAs for committed supplies. However, the Government has given CIL the flexibility to decide on the quantum of penalty if it falls short of meeting the commitments to supply 80 per cent of the assured quantity, the Coal Minister, Mr Sriprakash Jaiswal, said.
The Government has the right to invoke the ‘Presidential directive' under Clause 37 of CIL's memorandum of association. This allows the Government to overrule the board's decision if no consensus is reached on issues related to national interest. The directive comes after CIL declined to enter into such FSAs last week.
After two days of deliberations, the CIL board turned down the Prime Minister's Office (PMO) directive last week to enter into such long-term FSAs before March 31 with nearly 50 power units, commissioned between April 2009 and December 2011. At least two of the seven independent directors had opposed at the board meeting, after going through the clauses of a draft FSA.
Incidentally, if Coal India had met 90 per cent of the committed supplies, then according to the PMO directive, the company was eligible for incentives. CIL shares ended marginally higher at Rs 343 on the NSE on Tuesday.
The PMO had on February 15 told the company to sign FSAs with power plants that had tied up long-term purchase agreements with distribution companies and had been or would be commissioned by March 31, 2015.
For power plants commissioned till December 31, 2011, the FSAs were to be signed before March 31, 2012. Such FSAs were expected to provide relief to power plants with a prospective cumulative generating capacity of 50,000 MW.
The PMO directive followed a petition from the power producers, including Reliance Power and Tatas, who had claimed that new projects commissioned since April 2009 have been running at a sub-optimal capacity as they were unable to get sufficient coal from CIL. They also claimed that investments running into thousands of crores were at risk due to inadequate domestic supplies.
“By giving the flexibility to decide on the penalty, the fears of CIL has been addressed by the Government,” said an analyst with domestic brokerage. In other words, CIL will be encouraged to produce more and, at the same time, the Government could expedite clearances for its existing and new projects, the analyst said.
Output growth
Faced with delays relating to land acquisition and environmental clearances, Coal India has been struggling to increase its output in the past few years. For 2011-12, Coal India registered a one per cent increase in output at 435 million tonnes, wiping out the negative growth witnessed in the early part of the year. For 2012-13, the company is targeting 8 per cent growth in output at 470 million tonnes.
‘Ends uncertainty'
Power major NTPC has been maintaining that it has standing memorandums of understanding with the coal miner for all the plants commissioned after 2009. It has been hopeful of signing the remaining FSAs at the earliest.
“It ends uncertainty. Now we would like CIL to operationalise the decision quickly so that plants can operate to their optimal capacity and meet power requirements,” said Mr Ashok Khurana, Director General, Association of Power Producers.
vishwa@thehindu.co.in