NEWS ANALYSISThe task before CIL Chairman Narsing Rao now would be to pilot new FSA at the board meet and operationalise the agreements.

The Coal India Ltd. (CIL) board meeting is scheduled to be held this week to discuss the new FSA (fuel supply agreement). It will be anything but smooth, if past indications are anything to go by. Virtually all the decisions taken at the April meeting will now have to be revisited.

The initial discomfort over an absurdly low penalty for short-supplies (at 0.01 per cent of the value of the shortfall, leviable after three years) had given way to dismay among the user sectors. The draft FSA has sought to protect CIL from virtually every conceivable factor that may disrupt production, ranging from regulatory clearances to equipment failures!

The genesis of the FSA controversy can be traced to the government’s decision to force CIL sign binding contracts with power plants which have entered into long-term power purchase agreements with distribution companies and which have been commissioned or would get commissioned till March 31, 2015. Despite successive meetings, the CIL board could not concur, however. So, in an unprecedented action, the Coal Ministry issued a Presidential directive on April 4, seeking implementation of the fuel supply pacts.

CIL’s independent directors raised a voice of dissent against the move to make CIL enter into commitments when its production was not always in its control. Eventually, however, they came around. While experts lauded CIL’s decisions and showered praise on the board for its corporate governance, the draft left CIL tied in knots. The response from the power sector response was tardy, however. NTPC and Damodar Valley Corporation seemed to be in no mood to sign the pact. They sort of suggested that the earlier 2009 draft be used. They dismissed the new draft as a biased agreement. Some said it was unbankable.

Many believe that the absence, at the April 16 meeting, of the present CIL Chairman Narsing Rao (then Chairman-designate) despite being a special invitee was a deft attempt to avoid being party to any decision in which he has had no role. Publicly, he stood behind the board after taking charge on April 23, but hectic parleys were held to find a way out. The present formula then evolved. However, by the time it could be presented before the Prime Minister’s Office (PMO), the change of secretary to the Coal Ministry threatened to derail the plans. That did not happen as the PMO officials were convinced that CIL was not in a position to produce at a high level. And, the new draft gained acceptance. It stipulates that out of its 473 mines, in a best effort situation, CIL should be able to meet 60 per cent of its production target which could increase to 65 per cent and then to 80 per cent in the fourth year. “No penalty system has been devised but no lapse is acceptable either. Penalties would be levied only after the fifth year,” an official said.

The task before Mr. Rao now would be to pilot this new FSA at the board meet and operationalise the agreements.

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