Power struggle gets bitter

Written by Subhash Narayan | New Delhi | Updated: Dec 10 2012, 07:12am hrs
Coal ministry demand on commencement date irks power ministry

The battle between the coal and power ministries over the contours of the proposed fuel supply agreements (FSAs) between Coal India and power companies has turned bitter.

The power ministry has rejected a suggestion by the coal ministry to indicate the commercial operation date (CoD) of all power projects being commissioned till 2014-15 if they are to receive coal supplies from Coal India (CIL) under the terms of the new FSA and without paying a penalty.

It has said that CIL should first consider paying the penalty itself for not meeting its commitments before insisting on the same on others.

The standing linkage committee (long term), a body in coal ministry that approves coal linkage to user industries, insisted on the CoD so that it could levy a penalty on user companies (mainly power producers) if the projects got delayed, disrupting the coal offtake schedule.

In a strongly worded letter to the coal ministry, a senior official of the power ministry said that since the two sides have already agreed that only 66,000 MW of capacity would get fuel linkage in the 12th Plan, there was no reason why it should indicate CoD dates to the ministry of coal or CIL.

It has been brought to the notice of the ministry of coal that for more than 9,000 MW projects, which have been commissioned up to June 30, 2012, there is no supply of coal. So,if power developers are to be penalised for not achieving CoD dates, the same should be made applicable to CIL for not supplying coal as per the letter of assurance (LoA) commitments, the letter said.

The ministry has said that CoD dates must not be insisted upon and no penalty be imposed for delays unless there is penalty on CIL for not supplying coal as per commitment.

Under the new FSA approved by CIL, if a project developer is unable to achieve the CoD within the stipulated date, a penalty equivalent to 1% per month of the applicable commitment guarantee (CG) amount during the first six months and a penalty equivalent to 2% per month for the next six months will be imposed.

CG is a type of security deposit given by purchaser of coal to the seller before getting an LoA from the supplier. It is based on the price and the grade of coal that is under the contract and varies from company to company.