The issue of fuel supply agreements (FSAs) between Coal India (CIL) and newly commissioned power projects has again come to a head.At a recent board meeting, the CIL top brass decided that given the company’s obligations to shareholders as a listed entity, coal supply under the FSA cannot be allowed come in the way of company selling coal through e-auction, its most profitable venture. CIL has been selling about 10% of its output through e-auction with price realisation nearly twice its notified price.

With CIL unable to find ways to implement the decree directing to sign FSAs with power companies without compromising its commercial interests, the matter could again come up for discussion at the highest level, sources in the know said. The legal implications of the situation are also being studied.

The CIL board also agreed that the company will have sole discretion to import coal for meeting the committed demand. It has also sought clarification from the government on whether the presidential decree also stipulates 80% trigger level for invocation of penal provisions in case of supply shortfall for power plants commissioned during April 2012- March 2015.

According to observers, while CIL is keen to comply with the directive, it does not want to risk profitability. This dilemma was evident at the board meeting. What aggravates the problem is the company remains uncertain about growth in its future production. CIL remains a cash-rich company as methods like e-auction have helped it boost margins. Profits have risen in recent years despite stagnating production.

?CIL has to protect the interest of shareholders and also follow a pricing which does not affect the interest of interest users, including power generation companies. Since penal provisions of FSA would come into play only if quantum of supply reduces below the 80% of annual contracted quantity and CIL may have difficulties in short term to meet the commitment levels, CIL may fix a penalty percentage which protects its interest and at the same time acceptable to end consumers,? said Dilipkumar Jena, senior consultant and knowledge manager, mining, PwC. ?CIL needs to overcome production constraints in order to meet the ever increasing coal demand,? said Charudatta Palekar, another energy expert from the same consultancy firm.