Coal India snubs PMO on supply to power companies

The country’s largest coal producer, Coal India Ltd (CIL), has turned down a government directive asking it to ensure supply of 80 per cent of the committed quantity to power companies. After it went through the clauses of a draft fuel supply agreement (FSA) for the second day, the company’s board on Thursday decided to approve the draft without any commitment on the quantity.

Earlier in the day, senior company executives had met coal ministry officials and conveyed CIL’s inability to sign such a commitment that would bind the company for 20 years. “That would have exposed the company to a penalty,” said a senior official.

The government-owned company’s concerns have been conveyed to the Prime Minister’s Office (PMO), which had on February 15 directed 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.

The CIL spokesperson in Kolkata and Zohra Chatterjee, the officiating chairman and additional director in the coal ministry, were unavailable for comments.

London-based hedge fund The Children’s Investment Fund (TCI), which holds one per cent in CIL, has already sent a legal notice to the government, alleging that its “recent conduct with respect to CIL has seriously impaired business activities and operations of CIL”.

TCI’s grievances include pricing of coal up to 70 per cent below international market prices, allocation of coal blocks to the private sector below market prices, those blocks remaining undeveloped, loss-making underground mines continuing to be operated and the government generally controlling and issuing directions to the company in a manner abusive to minority shareholders. TCI has also cited interference by the ministry of environment and forests in delaying approvals to develop new coal mines.

The PMO directive came within a month of more than a dozen power sector CEOs, including Ratan Tata and Anil Ambani, meeting Prime Minister Manmohan Singh and other ministers in New Delhi. A committee of secretaries, headed by Pulok Chaterjee, principal secretary to the PM, had decided to issue the directive to CIL.

FSAs with 80 per cent commitment were expected to provide relief to power plants with a prospective cumulative generating capacity of 50,000 Mw. Power minister Sushilkumar Shinde acknowledged there were problems in signing the FSA. "It (the fuel supply agreement) is in the final stages. There have been some technical problems and they are being addressed."

CIL would be penalised for supply below 80 per cent of the committed quantity and incentivised for supplying above 90 per cent. If CIL was unable to fulfil its commitment from its own production, it would have had to arrange for supplies via imports or through arrangements with state or Central public sector units allotted coal blocks. CIL’s initial decision to limit supplies stemmed from a mismatch between growth in production, at six per cent, and growth in demand, at six per cent. Added to that was the lack of environmental clearances that stalled the development of about 660 million tonnes (mt) of coal reserves with potential to generate 130,000 Mw.