Forward e-auction coal may be reserved for power firms

Additional 6-7 mt to be available for the sector if proposal implemented

Tue, Feb 07, 2012

New Delhi:The government is considering reserving forward e-auction of coal, exclusively for the power sector. The proposal could be part of the detailed road map being finalised by the Prime Minister's Office (PMO) for the smooth sailing of power companies amid a severe coal crunch that is hurting investments worth thousands of crore.

The proposal is part of the discussions currently being held by the PMO with representatives of infrastructure sectors, including coal and power, for easing coal availability, according to sources. If implemented, it could make an additional six-seven million tonne (mt) coal available for the power sector. Forward contracts account for 15 per cent of the 45 mt Coal India (CIL) sells through e-auction every year.

The status report and a blueprint for action would be prepared within two weeks to solve the ongoing coal crisis. This could also include asking CIL to supply coal to power companies at a negotiated 85 per cent of the contracted quantity.

The move comes after month-long discussions of a committee of secretaries (CoS) headed by the PM’s principal secretary Pulok Chatterjee. The PMO is currently evaluating a road map to ramp up supply on the basis of the data on expected production received from the coal ministry and discussed in the first meeting of the CoS last Wednesday.

The meeting came a day after the government forced CIL to roll back a 12.5 per cent rise in coal prices due to a new grading system based on gross calorific value. Earlier, power companies had raised the issue with the government.

The PM has emphatically expressed the need to resolve the crisis after taking on board concerns raised by a delegation of power companies’ heads earlier this month, sources said. “At Wednesday’s meeting, the PMO asked the coal ministry the extent of supply of contracted quantity that can be met by CIL so that Fuel Supply Agreements (FSAs) can be signed. The PMO would firm-up a final decision on the matter soon,” a source close to the development said.

Normally, CIL first signs Letters of Assurance (LoAs) with consumers, which get converted to FSAs after the consumer meets certain obligations of project development within a time frame. The LoAs specify the terms and conditions of supply on the basis of a mutually agreed variation in annual contracted quantity (ACQ).

Historically, LoAs have been signed by CIL at 90 per cent of ACQ, meaning CIL would face penalty for a shortfall below 90 per cent and incentivised for excess supply over 90 per cent.

However, the world’s largest coal miner has, off late, started insisting on signing FSAs at only 50 per cent of ASQ, fearing penalty at the back of a severe dip in production. In fact, it has only signed three FSAs since March 2009 as delayed environment clearances took a toll on production.

Around 18,500 Mw capacity power projects commissioned since then – requiring 90 MT coal annually — are likely to operate at 55 per cent of their capacity.

CIL’s output remained flat at 431 mt last financial year. Production during six months ended September this year was down 11 per cent, declining for the first time in the company’s foreseeable history. The company’s share price at the Bombay Stock Exchange on Monday closed at Rs 321.8, up 1.4 per cent as compared to previous close.

(sourced Business Standard)