Coal scam fallout: securing fuel from CIL becomes simpler

Miner simplifies norms, will not ask power producers to submit wide range of documentation
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First Published: Thu, Feb 21 2013. 05 50 PM IST
Coal India chairman S. Narsing Rao. The government had made it mandatory for utilities to sign power purchase agreements before seeking supplies from Coal India to ensure that the fuel supplied by the state-owned miner is only used to generate electricity sold at regulated.
Coal India chairman S. Narsing Rao. The government had made it mandatory for utilities to sign power purchase agreements before seeking supplies from Coal India to ensure that the fuel supplied by the state-owned miner is only used to generate electricity sold at regulated.
Updated: Mon, Feb 25 2013. 12 59 AM IST
Kolkata: For utilities that have signed agreements to sell power at regulated tariffs, it is going to become simpler to secure long-term coal supplies from state-owned Coal India Ltd (CIL)—an unexpected fallout of last year’s controversy over allocation of coal mines to private firms.
The state-owned miner will not ask power generation companies to produce a wide range of documentation such as sale deeds of acquired land and reports on project viability and approvals from the various authorities for signing fuel supply agreements, or FSAs.
“For long, it has been alleged that CIL acts like an inspector—the only thing we need is a power purchase agreement (PPA),” said CIL chairman S. Narsing Rao. “Is it the job of a mining company to check if a power utility has obtained clearance from the pollution control board, or if it has followed all regulations when it bought land?”
This will reduce unnecessary paperwork, said Chirag Shah, an analyst at Barclay’s Capital, and CIL itself could be the biggest beneficiary.
The move is intended to make life easy for the promoters of power projects expected to be commissioned by March 2015. Last year, the centre issued a presidential directive to CIL to sign FSAs with some 120 power projects that have been commissioned, or are to be ready by March 2015. When they materialize, these will have a combined generation capacity of 60,000 megawatts.
The simplification of norms will benefit only those power utilities mentioned in the presidential directive, according to Rao.
CIL insisted on submission of documents to check if milestones were being achieved in the construction of a power plant, according to Partha S. Bhattacharyya, former chairman of CIL. But that scrutiny is no longer required because the centre has now made it mandatory for companies to sign PPAs before seeking coal from CIL, he said.
In the wake of last year’s controversy over the alleged improprieties in the allocation of coal mines to private firms, the government made it mandatory for utilities to sign PPAs before seeking coal supplies from CIL. The aim was to ensure the coal supplied by CIL was only used to generate electricity sold at regulated rates.
The submission of these documents, indicating the achievement of milestones, helped CIL plan future supplies, according to Ashok Khurana, director general of the Association of Power Producers, a lobby group. Without them, it may be difficult for CIL to make arrangements to supply coal to new power plants, he said.
Under the coal distribution policy, CIL cannot refuse to supply fuel to new plants not mentioned in the presidential directive, Khurana said. It is “legally bound” to supply coal to all new thermal power plants that agree to sell power at administered tariffs, he claimed.
But, clearly, CIL has a problem: in expanding production, it is unable to keep pace with the growth in India’s coal demand. Coal output has grown 5-6% annually in the past few years, whereas coal demand has been increasing 8-9% every year, consulting firm KPMG said in a recent report.
KPMG estimates that in 2015, CIL’s production could be 80 million tonnes (mt) short of the amount of coal committed by it to power utilities. In the current year, CIL is aiming to produce 464 mt.
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First Published: Thu, Feb 21 2013. 05 50 PM IST
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