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Monday, April 23, 2012

CIL board divided on FSA scope, agrees to abide by presidential directive

Coal India's board remains divided over fuel supply agreements (FSAs) with private power producers for plants being commissioned after December 2011 although its has agreed to abide by the Presidential Directive to sign agreements with older plants, company sources said.

In its meeting last week, discussions about plants being commissioned from December 2011 to March 2015, and possible imports to meet any shortfall led to a lengthy debate that could not be resolved, a director in the company said.

"We will need to see how this FSA goes with the power companies. Following this we will decide whether a new FSA will be required for other power plants or the existing one will suffice," a CIL official said.

The director said that after successive meetings and stiff resistance from the independent directors, the board could not take a decision about committing fuel to new power plants.

"At the board meeting of April 16, there was no decision on supplying coal to power plants that has come up between December 2011 and now; or plants that are to come up till March 2015. There was stiff resistance from a few independent directors even after the Presidential Directive which forced the board to decide only on signing FSAs for new plants between April 2009 and December 2011 only," a senior CIL director told ET.

The Presidential Decree had directed CIL to abide by the instruction of the prime minister's office and sign FSAs in 15 days with companies that had set up plants by the end of last year. The PMO's directive said: "CIL will sign FSAs with power plants that have entered into long term PPAs with discoms, and have been commissioned/would get commissioned after Match 31, 2009 and on or before after March 31, 2015."

"The PMO's directive also mentioned that CIL will have to sign FSAs before March 31, 2012 for plants that have been commissioned up to December 2011. The present FSA has been formulated to include these plants only," the director said.

Coal India will require about 64 MT of additional coal to honour the FSA commitments for plants that has been commissioned till December 2011. Nevertheless, the board has estimated that there will not be any requirement for coal imports in the first two years. This is based on the calculation that production will rise by 30 MT during 2012-13, and stocks of 72 MT.

However, officials believe it may not be easy for the company to increase production by 30 MT in a single year and liquidate bulk of the stock position. "The company is most likely to see shortfall in supply position requiring imports," he said.

"Not being certain about the implications of imports they have not been able to arrive any decisions on the import front," the official said.

Following the meeting on April 16, Zohra Chatterji, acting chairman, Coal India had said: The issue (coal imports) will be discussed at a separate meeting at a later date depending on the requirement. However, this meeting has not taken any decision with respect to imports and the various options that CIL was playing with."

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