Power producers take on CIL over lopsided fuel supply pacts


    Frustrated by uncertainty over fuel supply despite a presidential decree, power firms have adopted a confrontational approach towards Coal India.

    ET Bureau
    NEW DELHI: Frustrated by uncertainty over fuel supply despite a presidential decree, top power generation firms have adopted a confrontational approach towards Coal India and decided to complain to the competition regulator against the state-run giant's "monopolistic" rejection of liabilities for default.

    The power ministry is sympathetic to the concerns of private firms seeking fuel from the state monopoly and has sought the intervention of the prime minister's office (PMO) to quash Coal India's Fuel Supply Agreements (FSA). Power producers say the agreements are so heavily tilted in favour of Coal India that banks are refusing to fund projects that depend on such contracts for fuel, officials said.

    CIL was forced to offer supply pacts to power producers after industrialists led by Ratan Tata and Anil Ambani sought the PMO's intervention to resolve the fuel scarcity. When Coal India's board did not approve new FSAs, the government issued a presidential decree, forcing it to sign the pacts, but the state monopoly offered diluted agreements, which guarded the monopoly from penalties if it defaulted.

    A senior power ministry official said the ministry is against any alternations in the previous FSA as the Presidential decree only allowed changes in trigger level - the threshold level of coal supply to prevent penalties -- to 80% from 90%.

    "FSAs are legal documents like power purchase agreements. When we cannot amend the documents without deliberations and requisite approvals, how can Coal India change the documents?" he said.

    However, a top Coal India official said the FSAs were revised keeping in mind interest of the company and its shareholders as there is acute shortage of coal in the country.


    Power ministry has conveyed to the PMO that central power generating companies NTPC and Damodar Valley Corp will not sign the revised FSAs. The ministry has urged the PMO to instruct the coal ministry and Coal India sign model FSAs of 2009 within a month.
    "The FSAs have been diluted to such an extent that it will have no impact on Coal India in the event of non-supply. It took Coal India a year to draft the earlier FSAs in 2009 as it held consultations with stakeholders on all clauses. Now Coal India is deciding the issues on its own and in case of disagreement it threatens discontinuation of supply," the power ministry official said.

    Power firms said the draft documents defeat purpose of the Presidential decree as bankers have refused lending money on the basis of the FSA that do not guarantee firm coal supplies.

    Association of Power Producers, a body of 24 electricity generators, said it would approach the Competition Commission of India citing abuse of monopoly by Coal India.

    "We have spoken to lenders like the State Bank of India and Rural Electrification Corp who have refused debt saying the FSA was not bankable as it does not hold Coal India responsible for anything," association's director general Ashok Khurana told ET.

    The power ministry official said 13 power units have signed FSAs with CIL under financial pressure.

    About 50 power units were expected to sign FSAs with CIL after the Presidential decree was enforced upon the state miner as its board failed to abide by a PMO directive.
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    1 Comment on this Story

    Keshav Sachdev2982 days ago
    One can expect to see only monopolistic actions from a monopoly particularly a State monopoly.
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