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CIL may have to ration coal for some plants to feed private units

The ministry of power's proposal to provide nine private players including Adani's plant at Tiroda an out-of-the way coal linkage may eventually lead to rationing of coal for others, especially state-run power generation companies. This may result in state power producers having to cut down production or rely on imports, according to sources in Coal India Ltd (CIL).

Power officials had pointed out that the ministry has no ulterior motives and consumers stand to gain a lot by the decision.

Currently, some CIL subsidiaries are able to provide state-run power plants much more than - up to 120% -- the contracted coal. To ensure coal supply to the nine private plants as per the power ministry's plan, it will have no option but to reduce the supply to the minimum mandated level - 65% or 90%.

State-run companies as well as the central public sector undertaking National Thermal Power Corporation (NTPC) largely depend on fuel supply agreements (FSA) with CIL subsidiaries. In Maharashtra, Mahagenco has FSAs mainly with city-based Western Coalfield Ltd (WCL).

The power ministry's proposal calls for having FSAs with nine players bypassing the regular steps. This may involve as much as 24 million tonnes of coal, say industry sources. "The sudden demand surge due to this may lead to adjustments from others' quota," they add.

For all the FSAs till 2008, CIL subsidiaries are supposed to provide up to at least 90% of the annual contracted quantity. For post 2008 FSAs, the minimum level is 65%. If the CIL is not able to maintain the minimum level, it has to pay a penalty.

Several CIL subsidiaries are able to supply more than 90% with the offtake even crossing 100% in some cases. The Khaparkheda plant of Mahagenco gets 120% of the contracted quantity, with NTPC plants largely getting 100% of the FSA.

Other plants of Mahagenco can also get over 90% supply which is, however, not possible due to operational reasons and not lack of coal. Mahagenco also depends on Orissa-based Mahanadi Coalfields ltd (MCL), for a part of its supplies. So, if MCL is constrained, Mahagenco's supplies may suffer.

It would be clear case of robbing Peter to pay Paul as without pegging the supply at 90% or 65%, the CIL will not be able to supply coal to private companies as per the power ministry's plan. The priority would be to supply the minimum quantity to those plants with which it has FSAs and not attract the penalty too.

It is likely that the old FSAs with 90% trigger may be hit, said sources. "This will in turn reduce the plant efficiency and coal may have to be imported," they added. Experts added that it is here that the private players would be making a killing as some of them are also engaged in coal imports too.

Coal linkages are awarded through a process that starts from the case being presented at the standard linkage committee in the ministry, followed by a letter of assurance (LoA) and then a fuel supply agreement with the concerned CIL subsidiary. Though the nine companies have so far not got any LoA, the power ministry is pushing for a FSA with them.

So far, CIL has issued LoAs for 177 projects to be commissioned in 11th and 12th five year plans, having a total capacity of 1,08,000MW. However, CIL has got presidential directives for FSAs with 172 projects having total capacity of 78,000MW. These include some projects in Vidarbha too. So far 160 FSAs have been signed for a cumulative capacity of 73,075MW capacity. The other 12 cases are pending for different reasons.

The nine private companies may get a preference over those who have not signed a FSA but have secured LoA from CIL. The smaller players in non-power sector are already facing the heat. The earlier quota of 10 to 15% of the planned production for sale through e-auction, has been brought down to below 10% since July this year.

Under the system, coal could be purchased over and above the notified rates of around Rs1,500 a tonne through competitive bidding. It helped the smaller units. With the e-auction quota halved, proportionate coal is freed to be disposed through linkage mode. Sources in the sector say this move may also help the nine private companies.



How the system works

Step 1: Case comes up before standard linkage committee

Step 1: A letter of assurance is given by a CIL subsidiary

Step 3: A fuel supply agreement is signed between a power company and CIL subsidiary

Step 4: Under FSAs signed till 2008, at least 90% of contracted quantity has to be supplied. The level is 65% for FSAs after that

What could happen

* Government proposes to sign FSAs for nine companies by skipping LoA stage

* With production CIL subsidiaries may prefer to keep their supply at the minimum level of 90% or 65% for existing contracted plants

* Currently several plants, mostly state run gencos, are getting over 90% of contracted quantity

* If they get less, they may have to import to plug the gap

* Some private players among nine companies also import coal, so they would benefit in two ways - get cheap coal from government while sell high priced imported coal to state companies

Source: The Times of India