New Delhi: Unable to mine enough coal, state-owned Coal India Ltd (CIL) may miss its supply targets for the current fiscal, and will, like in the past two years, not sign fuel supply agreements (FSAs) for power projects.
The reluctance of CIL to sign these agreements has “has created tremendous uncertainty in the minds of the bankers and investors, and has severely impacted their sentiment about the power sector,” according to the power ministry.
An FSA guarantees coal supply and is a legally binding document that requires CIL to supply at least 90% of the contracted volume.
“CIL doesn’t want to sign FSAs. For all projects commissioned after 31 March 2009, no FSA has been signed,” said a person aware of the development, who didn’t want to be named.
CIL isn’t signing FSAs simply because it can’t, said chairman N.C. Jha. “Last year we had 0% growth. This year we’re in a negative growth. We’re not getting blocks, we’re not getting clearances. If this situation carries on, how can we bind ourselves to giving coal that is simply not there?”
Coal secretary Alok Perti didn’t respond to repeated phone calls and an email seeking comment.
Understandably, this has led to a queue of companies waiting to sign FSAs with CIL; at last count, agreements for projects aggregating 12,500 megawatts (MW) of power commissioned during 2009-10 and 2010-11 were pending. CIL has supply agreements for 306 million tonnes (mt) of coal and all were signed before March 2009. Power firms consume 78% of the total domestic production of coal.
“We are meeting up to 90% of the coal requirement with FSA customers. Four companies in the last one year signed the new model of FSAs under which we’re committing to meet 50% of their requirement. Most of the companies that existed prior to 2009 have FSAs with us and we are meeting their demand. In some months we’d have supplied less coal but we’ll cover up ahead,” added Jha.
A worried power ministry is trying to convince CIL to sign FSAs, said a power ministry official, who didn’t want to be named.
Most new power firms have, instead of FSAs, so-called memorandums of understanding with CIL, under which the state-owned miner meets 50% of their coal requirement, said a CIL official, who did not want to be named. India’s coal ministry has promised more coal to existing power plants, but according to a Thursday report by the Press Trust of India, around 33 power plants currently have coal supplies that can keep them running for just four days. The news agency said power plants usually stock around 10-15 days of coal.
India is dependant on coal for power. Of the country’s installed power generation capacity of 1,82,345MW, 54.7% is coal based; much of the targeted addition of 100,000MW during the 12th Plan (2012-17) is coal-based. It takes around 5,000 tonnes of coal to generate 1MW of power every day for a year.
India has 75 thermal power projects that depend on CIL for fuel supplies.
According to documents reviewed by Mint, the power ministry is of the opinion that “it is unlikely that MoC (ministry of coal) would be able to supply the committed quantity of 347 mt of coal to the power plants”. The ministry has said it will be able to supply 347 mt supply to the power sector, but the estimate was based on a 10-12% growth in coal production. Regulatory and environmental hurdles have kept this growth to 2% and this will limit the supply to 320 mt.
“FSAs are enforceable agreements. The clients of CIL can go to court if the company does not meet the commitment... CIL’s production has not grown. So while its production remains the same, the consumers have increased. That’s where the problem is,” added a senior coal ministry official, who also didn’t want to be named.
CIL mined only 431 mt in 2010-11 against a target of 461.5 mt because of stalled projects. Its target in the current fiscal year is 452 mt.