Presidential fiat to CIL on fuel supply pact

A worker shovels coal at a wholesale coal shop on the outskirts of Agartala, capital of India's northeastern Indian state of Tripura April 3, 2012. State-backed Coal India may have to pay power companies between 10 and 40 percent of the average cost of 20 percent and more shortfall in supplies under new guaranteed fuel pacts the government is forcing it to sign, ministry sources said. REUTERS/Jayanta Dey (INDIA - Tags: BUSINESS EMPLOYMENT ENERGY)

With Coal India Ltd. (CIL) not following Prime Minister Manmohan Singh's directive to commit coal deliveries to power companies, the Centre, on Tuesday, issued a Presidential directive, asking the public sector undertaking (PSU) to immediately sign fuel supply agreements (FSAs) with power producers.

“The government has this power reserved so that whenever there is an emergency then that power can be used. As we saw an emergency…there was a commitment by Coal India. Therefore, the government decided to sign the FSAs with 80 per cent commitment. That is why the directive was issued,” Coal Minister Shriprakash Jaiswal told journalists here. It would not take more than 2-3 days for CIL to sign the FSAs with the power producers, he added.

However, ambiguity remained on the crucial clause of penalty if the CIL failed to honour the FSAs. “It is for Coal India to decide (on penalty)…let the (CIL) board decide, they have full freedom (on it),” Mr. Jaiswal said.

Significantly, independent directors on the CIL board have been resisting the signing of FSAs with power producers due to the penalty clause, fearing huge loses for the PSU.

The move comes after CIL failed to meet the March 31 deadline set by the Prime Minister's Office (PMO) for signing of the FSAs for all projects commissioned before December, 2011. In February, the PMO had issued these directions to CIL after the heads of top power companies, including Tata Sons Chairman Ratan Tata and Reliance Power Chairman Anil Ambani, met Prime Minister Manmohan Singh seeking assurance on coal supply.

They had informed Dr. Singh that CIL had been insisting on signing the FSAs with the assurance of only 50 per cent of the required quantity.

As a result, no FSAs had been signed since April, 2009.

“The FSAs will be signed for full quantity of coal mentioned in the Letters of Assurance (LoAs) for 20 years with a trigger level of 80 per cent for levy of disincentive and 90 per cent for levy of incentive. In case of any shortfall in fulfilling its commitment under the FSAs from its own production, CIL will arrange for supply of coal through imports or through arrangement with State/Central PSUs which have been allotted coal blocks,” the PMO had told CIL in February.

Notably, before this, the government had issued Presidential directive to gas supplier GAIL India in 2005 insisting on a particular technology for laying the Rs.1,800-crore Dahej-Uran pipeline.