Power industry miffed with CIL, to approach PMO

Miffed at the Coal India (CIL) board's recent decision to set a low penalty level under the fuel supply agreements (FSAs) with power plants, private power producers are planning to again approach the Prime Minister's Office (PMO). What CIL would pay if it fails to supply the entire additional quantity of coal to the power sector is a paltry Rs 77 lakh annually.

After last month's presidential directive to the world's largest coal producer, its board on Monday agreed to sign new FSAs with power companies at an 80 per cent commitment level. However, the board not only set a penalty level of a mere 0.01 per cent (one-hundredth) the value of the shortage below 80 per cent, it also wants the penalty to come into effect only after three years of signing FSAs. "If we keep the average price of coal for the power sector at about Rs 1,100 per tonne, the penalty we are going to pay after three years would be around Rs 1.1 lakh per million tonne. This shows the penalty clause of 0.01 per cent will not have any effect at all to the company's profits,&" a senior CIL executive admitted, on condition of anonymity.

The maximum fine CIL would have to pay if it failed to meet the promised 70 mt of additional coal, according tot the FSAs, would be about Rs 77 lakh. Considering CIL had a turnover of about Rs 50,200 crore in 2010-11, the penalty would hold little meaning.

According to a board member, in the seven-hour meeting yesterday, the main point of contention was the penalty clause. "Independent directors were not even ready to give a penalty clause. Finally, we decided to keep it at the least possible level,&" he said. At present, penalty is paid by the coal supplier at 10 per cent (one-tenth) of the value of shortage below the committed quantity. The domestic industry has termed the board's decision on low penalty level "irresponsible behaviour&" and "a mockery of assured supply&".

Power producers are understandably complaining. "We feel the presidential directive has not been followed in spirit and intent. So, the coal ministry should act suo motu (on its own) to address the concern. And, if it does not, we will take up the matter with the prime minister again,&" Ashok Khurana, director-general of the Association of Power Producers told Business Standard. He, however, added any decision on FSAs would be taken by companies individually.

"Our allocation to the power sector would cross the 400-mt mark this year, compared with the current 383 mt. During the first two years, allocation won't be a problem for us, as there would be no shortfall. So, even if imports take place, these would begin from the third year,&" a senior CIL executive told Business Standard.