1. Despite CIL’s higher production, some developers complain of low coal supply

Despite CIL’s higher production, some developers complain of low coal supply

Although the record coal production by the state-run miner Coal India (CIL) has eased the fuel supply for most thermal power plants, many stations commissioned after 2009 allege that the CIL was still sticking to its earlier stance of providing only three-fourth of the annual contracted quantity.

By: | Published: April 26, 2016 6:36 AM

Although the record coal production by the state-run miner Coal India (CIL) has eased the fuel supply for most thermal power plants, many stations commissioned after 2009 allege that the CIL was still sticking to its earlier stance of providing only three-fourth of the annual contracted quantity.

Back in 2011, CIL had signed definitive fuel supply agreements (FSAs) with 78,000 MW of power plants but with a condition that said that public sector enterprise will only supply a fraction of total requirement till its production remained inadequate. Many of these plants have started receiving 75% of their annual contracted quantity (ACQ) from the start of this month but they contend that CIL should supply the entire quantity in view of production increase.

“Coal India and its subsidiaries have allowed power plants with valid FSA for offtake of entire contracted quantity. However, the current situation isn’t that of a fuel scarcity but of flagging demand that has forced several plants to run at 60% load factor leading to lesser requirement of fuel,” a top coal ministry official told FE. He added that the coal miner had auctioned nearly 50 million tonnes of coal last fiscal thus providing further fillip to coal-starved plants.

A top executive of a private power developer told FE that it was true in some cases that CIL was providing more than 75% of contracted quantity but it was not so in all instances. “In some cases, power plants are asked to arrange for their own coal transportation from the mines for quantity exceeding 75%. While this works for pithead-based plants, it becomes unviable for those that are located, say, 100 kilometers from these mines,” the executive added.

Another private developer alleged that some of the CIL subsidiaries were asking developers to procure quantity beyond 75% from e-auctions. This meant that CIL was benefiting from the surplus production by holding auctions for the quantity that ideally should have been provided to the FSA holders. The average clearing price for coal in e-auctions has been about 15% above the FSA rate.

Developers have also pointed out the stance of South Eastern Coalfields (SECL), the second most prolific CIL subsidiary in terms of production, informed its clients at the beginning of the month that while the company will provide lower grade coal to the extent of 75% of contracted quantity as per the FSAs, any requirement for excess quantity will have to be met by higher grade coal from the subsidiary.

“High grade coal (G3, G4 and G5) from Korea-Rewa field is also being hereby offered in lieu of the import component of 5% of annual contracted quantity for FY 17 and non-acceptance of the same by such power plants shall be considered as deemed delivered quantity,” SECL said in its notice to developers.

It added that power plants that were looking to book coal beyond 80% of requirement can do so from the high grade coal reserve. Affected developers have told FE that using high grade coal meant that the variable cost of the electricity went up substantially. Further, the transportation involved would also lead to higher cost of power.

Industry is of the view that some of these issues related to an outdated coal linkage policy of 2011, which has not been replaced yet. However, the coal ministry has been working towards revamping the linkage policy completely to eliminate discretionary role of the linkage committee and introduce auction in the same manner as was done with coal blocks. The policy is likely to be cleared by the cabinet this month. In the meanwhile, the gaps in existing policy has been hurting some developers.

“Present long-term coal entitlements and access against linkages was announced in 2011, which was based on coal scarcity position, and ended in April 2015. The new framework taking into account current coal production is long overdue,” Ashok Khurana, director general, association of power producers told FE.

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