Coal news and updates

Coal ministry throws lifeline to CESC Chandrapur plant

In a major reprieve, coal ministry has decided to throw a lifeline to the 600 megawatt (mw) power plant in Chandrapur in Maharashtra, owned by Kolkata-based CESC.

The plant, which was taken over by CESC in 2009, was denied coal supply on the ground that ownership change was not disclosed to the coal ministry.

In a meeting held on Friday, the case of restoring coal supplies to the plan was considered favourably following a directive to Coal India Ltd (CIL) by the ministry, sources said.

The decision would also impact any future deals leading to consolidation of the power sector through mergers and acquisitions.

CESC has communicated to the ministry that it has put in Rs 3,670 crore into the project including Rs 2,600 crore of bank loans from Indian commercial banks, and prolonged delay in coal supply to the power plant is impacting its financial viability.

CESC in 2009 acquired a majority stake in Dhariwal Infrastructure Pvt Ltd which was setting up a 600 mw thermal power station in Chandrapur, having land, and coal and water linkages in place.

While both the units of 300 mw each have been commissioned, the FSA for the project, however, remained elusive as CIL subsidiary South Eastern Coalfields said the share transfer violated para 5 of the Letter of Agreement as the ownership change was done without prior approval of the coal ministry.

Aggrieved, CESC approached High Court of Chhattisgarh and reasoned that coal under pact with CIL would be supplied not to any third party but to the same project whose ownership has changed.

The ruling of the court made in March prodded the authorities to make "reasoned order" using "application of mind" has now influenced the decision of ministry to change its stance.

"The respondents (Coal India) have not raised issues that the project and the location for which LoA had been granted has been altered or that the condition of the LoA changed," the Chhattisgarh High Court order said.

In light of this observation, the ministry said in a document circulated during Friday's meeting: "It is a fact that there is serious omission on the part of the party in not taking prior permission for change in name. However, the matter has now to be decided in the light of the order of the High Court."

That norm to deny coal supplies to power plants under existing Fuel Supply Agreements in case of change in name of a company due to amalgamation, takeover, change in ownership and shareholding pattern was done to prevent trading in pacts for coal which was once a precious commodity.

But this rule has also put into question the viability of CESC's Chandrapur plant and also that of others which have similarly been sold off.

source: http://www.dnaindia.com