New FSAs not yet finalized; penalty structure, force majeure and related aspects are the key issues
Contrary to the media articles of NTPC signing FSAs post 22nd June PMO meeting, the company denied signing of incremental FSAs for any of the plants commissioned post 31st March 2009.
Key reasons why NTPC is contesting on signing the new FSA
1. Penalty clause of 0.01% of coal shortfall does not carry incentive to meet any threshold level agreed in the FSA.
2. Force majeure clauses introduced in the new FSA draft and other issues related to penalty against poor quality of coal delivered are skewed in the interest of Coal India
3. The extent of stones being capped and not on actual quantity
4. Nil penalty in the initial 3 years and various similar clauses pertaining to non-achievement of the supply quantity
However, the trigger levels are no longer a contentious issue
Incremental coal imports to be minimal (implying domestic coal availability to be largely adequate)
On NTPC coal requirement for FY13
1. Total requirement estimated is 164 MT
2. On coal sourcing to meet this requirement, 120 MT to be received under pre 2009 FSA ( against 125MT of Actual Contracted Quantity) , 17 MT under MoU for plants commissioned post 2009. Hence the deficit of 27MT to be substituted by import of 16MT for FY13 ( FY12 import was 12MT). In FY14 the imports are expected to by only 18 MT.
3. While in the past NPTC has also procured e-auction coal in small quantities , the company prefers importing any shortfall given the large quantum (e-auction ideal for small quantity). NPTC procures coal by inviting tenders specifying the coal quality/specifications and the point of delivery. Currently most of the coal imports are from Indonesia.
4. The company has scrapped a recent 5 MT coal tender due to the rates quoted in the bid being higher than the current market rates (which has corrected by 25%)
5. On potential logistical issues for delivery of imported coal the company said that most of the new plants are brown field expansions (except Mouda which was commissioned recently) which have adequate infrastructure/connectivity for importing coal.
On FY14 requirement while the requirement study would be carried during Jan 13 …imports may marginally go up from 16MT to 18MT (incremental 2 MT) to bridge the shortfall. However more clarity to emerge on fuel requirement/sourcing for FY14 only later
YTD performance has been satisfactory
YTD performance has been satisfactory due to higher materialization of coal supplies from Coal India during the quarter. PFA & PLF stood at 90% and 87% for coal plants.
Farakka and Kahalgoan units that were commissioned some time recently had issues with fuel supply due to some logistic issues. The situation has improved during the quarter to 80% & 82% of total requirement on addressing logistic issues & domestic coal availability.
Moving to GCV from UHV system was opposed by NTPC because of the lack of adequate infrastructure at CIL mines to actually measure the quality ( billing for 4000 Kcal coal while the actual coal quality could be 3500 Kcal) since the Indian coal is lower quality and has high ash content.
Indicative variable cost @ some of the NTPC stations ( averaging between around INR 2/unit)
Korba : 0.76/unit
Sipat : 0.98/unit
Talcher : 1.71/unit
Simhadri : 2.06/unit
varies depending on the blending levels and also distance of the plant from the port
On potential solution to the coal problem in the near term till the actual scale up happens…..pool pricing looks like a very bleak possibility.
Source - Edelweiss Securities Limited
(www.coalguru.com)
