In what is seen as a climb down by the Prime Minister’s Office (PMO) in the fuel supply dispute, Coal India Limited (CIL) has managed to have its way by getting the government to scale down the minimum coal supply commitment to 65 per cent from the 80 per cent for new fuel supply agreements (FSAs) under the direction of the PMO.

The UPA Government had gone ahead and got a Presidential directive issued to CIL to ensure minimum 80 per cent coal supply under the new FSAs. This had led to a situation where CIL had publicly voiced its concern that it was not in a position to fulfil the 80 per cent requirement for fuel supply leading to failure to sign FSAs with various power producers. The decision was taken at a meeting held in the PMO on Friday under Principal Secretary to Prime Minister Pulok Chatterjee. Coal Secretary S. K. Srivastava and CIL Managing Director Narsing Rao were also present in the meeting along with senior officials of Finance, Power, Coal and Steel ministries.

In addition, the PMO has also directed CIL to go in for import of coal through agencies such as STDC and MMTC to bridge the gap due to inadequate domestic coal supply. It is learnt that CIL made a presentation in PMO on the coal supply issue and highlighted its constraints in living up to the Presidential directive. It managed to get PMO agree to much less commitment for assured supply of 65 per cent for the first three years of the fuel supply agreements (FSAs) from 80 per cent. But in the fourth year, supply had to increase to 72 per cent followed by 80 per cent in the fifth year of the agreements, sources added. The company will have to pay damages, equivalent to 10 per cent of the value of the shortfall in supply to the power producers. Besides, there would be no moratorium on payment of penalty.

“We will now be having board meeting of CIL. They may take a final view on all these issues, including penalty, FSA and coal imports,” Mr. Srivastava told reporters on Friday after the meeting. CIL, which missed the revised production target last fiscal and produced 435 million tonnes of coal, has set a production target of 464 million tonnes for 2012-13.

Reacting to the developments, Association of Power Producers (APP) Director-General, Ashok Khurana said 65 per cent of 85 per cent supply committed under LoA would imply PLF of 55 per cent which is far below the normative availability factor of 85 per cent. “If this measure is not accompanied by bulk coal imports to meet the deficit for normative availability, price pooling and across the board tariff revisions to reflect blended fuel price; the outcome would be disastrous for power sector. Therefore to ensure that the projects do not default in their PPA obligations and become NPAs, we reiterate that the above must be accompanied by bulk imports and price pooling,” he added.

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