Coal Ministry backed the Power Producers’ demand of review of new FSA of Coal India…

Power India found that Coal Ministry has backed the Power Developers’ – Reliance Power, NTPC and India Bulls etc – demand for review of the new Fuel Supply Agreement (FSA) Proposed by Coal India Ltd (CIL).

 

Most the Power Developers has argued that the FSA proposed by CIL is having too many escape clauses and heavily loaded against the Power Developers.

 

Some of them are enlisted here:

 

• All duties, levy to be pass through: All Duties and/or levies include liabilities arising out of the MMDR Bill have to be borne by Power Producers. This means whenever the MMDR Bill comes into effect, Coal India will increase prices proportionately. 
  
• Force majeure clause: The clause shields Coal India from supply of fuel as per LOA due to (1) Government of India or relevant state government’s refusal to grant or renew any required permit or mining lease or governmental approvals related to land acquisition and environment/forest clearance, (2) law and order problem, strikes and civil disturbances 
  
• Import of coal in case of domestic fuel shortage: CIL shall have, at its sole discretion, the option to supply the balance quantity of coal through import to be delivered at unload port at cost plus pricing including service charges of CIL. In the event, the quantity offered for imported coal is not accepted by the purchaser, no penalty shall be applicable for the shortfall to CIL. Power producers will have to pay imported coal prices. Hence, no pooling of prices will happen  
  
• Timely execution of power projects: The FSA directs power companies to complete all activities within 24 months of LoAs (with a grace period of 180 days). The purchaser shall have completed the construction, as per the implementation schedule specified in detailed project report/techno-economic feasibility report submitted during the validity of letter of assurance (LoA).This would be result in exclusion of power projects, which are delayed .
  
• Coal for long term PPAs only: CIL will provide coal only to those capacities that have long-term PPAs. Thus, coal will be available only to regulated entities 
  
• Penalty clause for CIL: The penalty for Coal India in the event of fuel shortfall will be minimal (0.01%)

 

Though some of the developers have inked the agreements because of fuel supply constraints, the general consensus is that Coal India is making use of its monopolistic situation, those from the industry said.

 

On the review of the FSA after five years, power developers say that this clause provides undue liberty to the seller as ‘aggrieved party’ to exercise the right to terminate the agreement. They say that the scope of review should be agreed upon upfront instead of leaving it open-ended. The developers want it to be modified in line with the previous FSAs executed in 2009.

 

With regard to the clause on compensation on short delivery/lifting, the developers feel the rate of compensation for the ‘failed quantity’ is too little a penalty for non-fulfilment of obligations. It is hardly a disincentive and will not discourage low fuel suppliers.

 

Till Monday, 10 FSAs were signed. Out of these, four each were signed with Rajasthan Rajya Vidyut Utpadan Nigam Ltd and Bajaj Hindustan Ltd and two with Lanco Anpara Power Ltd.

 

“There is a list of around 50 power companies. However, FSAs would be signed with 38 of them. This is because, fuel supply pacts can be signed only with producers who have signed power purchase agreements with distribution utilities,” said a Coal India official.

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