ET reported that coal ministry has asked Coal India Limited to quickly approve the model fuel supply agreement to be inked with power firms, amid some board members of the PSU firm requesting more time go through the nuances of the pact.

A source close to the development said that "Recently, the coal ministry wrote a letter to CIL asking it take quick action with regard to fuel supply agreements."

The model FSA with changes is likely to be placed for approval in CIL's board meeting likely next month.

A source said that "In the last board meeting held on August 13th 2012, it was decided that two to three members on CIL board would minutely go through the model FSA and a side agreement which describes large decisions like coal price pooling mechanism."

The source added that "Due to shortage of time the board members could not go through the clauses closely, therefore it was decided to place the model FSA and side agreement after thorough examination for approval in the next board meeting of CIL likely next month."

After the board meeting on August 13th 2012, when CIL CMD Mr S Narsing Rao was asked if the board has approved the model FSA with significant changes, he said that "Today, it is not in a sign able form."

CIL in its board meeting held on August 7th 2012 had agreed to paying penalty between 1.5% and 40% on failing to supply the committed quantity of the fuel to power firms.

On price pooling, Mr Rao had said if it is implemented, all the power consumers would have to bear the impact, adding that, however, it should be neutral to CIL.

CIL has reached a consensus on supplying a minimum of 80% of the contracted quantity to power firms.

The issue of penalty has been a bone of contention as power firms, led by NTPC, had been opposing the meager penalty clause in the earlier FSA of only 0.01%, that too applicable after three years of shortfall. They refused to ink to fuel supply agreement.

Of the committed 80% of the assured supply, CIL would meet 15% through imports and 65% through domestic production. It is estimated that CIL would need to import 20 million tonnes of coal this year to meet the demand of power companies.

To offset the impact of high import costs, the Planning Commission had said that CIL should adopt a pooling formula on prices by combining rates of imported and domestic coal.

The company said the board in-principle approved pooling of prices. So far, only 29 power companies, including Lanco and Adani have signed FSAs with CIL.

Source - Economic Times

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Policy/Steam Coal/India