Independent Directors of CIL opposes the CEA’s proposal for import of coal…

The independent directors of Coal India Ltd (CIL) have suggested the Coal Ministry and CIL that the recent proposal of Central Electricity Authority (CEA) regarding the import of coal would benefit only the Independent Power Producers (IPPs) at the expenses of public money.

 

The independent directors have sent a note to CIL as well as Coal Ministry wherein the have asked the official directors to re-consider their stand in view of the grave legal, commercial, economic and ethical problems arising out of their supporting the CEA views.

 

The proposal of CEA was as below:

• CIL shall import around 20 million tonnes of coal in 2012-13 and supply the same at a subsidised price (nearly half of the cost price) to IPPs.
• This will result in a loss of Rs. 3,000 Crore annually to the company and over 20 years the same will be around Rs. 60,000 Crore.
• The above losses shall be made good by increasing the prices of indigenous coal to about Rs.100 a tonne for all power producers.
• The decisions of CIL in finalising the terms of the fuel supply agreements (FSAs), including the trigger point at 80 per cent of annual contracted quantity (ACQ) and the rate of penalty at 0.01 per cent taken on April 16, were a result of wide and deep deliberations carried out at several meetings of the CIL board this year in pursuance of the April 4 Presidential directive.
• These decisions have already been implemented in the case of 29 private power producers.
• It states that no arrangement has been made by the CIL management to protect the company or its directors against allegations and proceedings likely to come up by deviating from the Presidential directive. The note states that the new dispensations entail lowering the trigger points from 80 per cent of ACQ to 65 per cent but also seek to levy penalty ranging from 5 to 40 per cent of the quantity not delivered. This mechanism is sought to be justified on the ground of ensuring better performance of CIL.
• The management seems to agree with the premise that the qualitative changes for securing productivity can be obtained only by a threat of penalty of 40 per cent. To us, it looks like an arrangement to transfer thousands of crores of public money to the private power producers in the name of penalty over CIL.

 

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More news on this topic:

http://www.thehindu.com/business/coal-india-board-split-on-cea-proposals/article3958525.ece

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Tussle between Power and Coal Ministry on coal shortfall…

Power Secretary P Uma Shankar has recently issued a letter to Coal India Ltd (CIL) to compensate for the losses of power companies due to failure of CIL to provide coal to the power firms.

 

This is sparked a confrontation between to prominent Ministries of India; Coal Ministry and Power Ministry.

 

Power Secretary blamed CIL for hurting power sector investments as financial institutions had been shaken by the coal shortages.

 

We believe that the move of CIL’s independent directors to block the import of coal and their sale at a discount to power producers as suggested by the Central Electricity Authority has triggered the Power Ministry to issue the said letter.

 

The views depicted in the letter by Mr. Shanakr were:

• Power producers had made investments after coal supplies were approved by the Coal Ministry and assurance letters issued by CIL, Shankar wrote in his letter.
• However, CIL has failed to honour its binding obligation, thus leaving such assets stranded, threatening not only their viability, but likely to make them non-performing assets.
• CIL board has also rejected the suggestion to import coal.

 

According to Mr. Shankar:

“CIL board and its director will do a great service to the nation if they do some soul searching on their responsibility and their commitment to increase production of domestic coal and ensure adequate supply of coal to help the growth of the country and not expose power and banking sectors to the risk of jeopardising all their investments, which is largely public money. In fact, as a responsible corporate entity, CIL should compensate the power producers for the loss suffered by them due to its failure in providing them the promised fuel to run their plants at a viable level. The PSU has obtained bank guarantees worth hundreds of crores from the power producers to bind them in an offtake agreement... CIL has failed to honour its commitments.

 

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More news on this topic:

http://www.indianexpress.com/news/power-secy-to-coal-india-no-coal-pay-companies/1011143/

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Power Plants should be given at par priority for gas allocation with fertilizer plants…

Power India found that the MoP (Ministry of Power) has requested that the gas based power plants should be given the at par preferences for allocations of natural gas with that of fertilizer plants. According to MoP, this should be due to the fact that import of power is not possible as is the case with urea.

 

As with the current priorities are concerned with respect to allocation of natural gas to various industries, fertilizer plants get top most priority followed b LPG extraction units; gas based power plants comes third in the priority list.

 

Due to this reason, when RIL’s (Reliance Industries Limited) KG-D6 field production fall then the expected level, all the available gas was first utilized for the meeting the fertilizer plant’s requirements and thereafter the requirements of LPG plants was met. Only leftover gas was distributed among the power plants on a pro-rata basis, resulting in sharp dip in electricity generation.

 

Following statistics may enlighten the above:

• KG-D6 output dipping to 27.5 million standard cubic meters per day (mmscmd) instead of rising to projected 80 mmscmd,
• Entire 15.668 mmscmd allocations to 16 fertiliser plants were met first (from the anove 27.5 mmscmd.)
• LPG manufacturing plants got 2.6 mmscmd as required
• Balance 9.3 mmscmd distributed among 25 power plants (the actual allocations/requirement was 28.9 mmscmd)
• Hence, only 30% requirement of gas plants were met while 100% requirement of fertilizer and LPG manufacturing plants were met.

 

Due to the above cited reasons, the Hon’ble Power MInister M Veerappa Moil has told in an interview that "There is a need of re-prioritisation of gas. Fertiliser can be imported but power cannot be imported. An equal status for power plants can be considered as we give to fertilizer,"

 

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More on this topic…

• http://www.moneycontrol.com/news/economy/give-power-stations-priority-for-gas-allocation-ministry_764246.html

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