Fuel supply agreements (FSAs) between Coal India (CIL) and power companies, which spare the coal miner from penalties even if there is a supply shortage in the first three years, has not found favour with the coal ministry, which feels this clause dilutes the very purpose of the penalty.
?You cannot have an incentive weaved into the scheme whose basic purpose is to disincentivise delays. The three-year moratorium drifts away from the purpose of penalising. We have not given any directive to the CIL in this regard so far, as we are waiting for its (CIL) reply, but this is something that we do not support,” a senior coal ministry official said.
Power producers had objected to the moratorium proposed under the penalty clause in new FSAs under which coal is proposed to be supplied to power plants. The FSAs force CIL to supply at least 80% of the coal required by a power company. The CIL board recently approved a meagre 0.01% penalty for supply shortfalls, which was strongly opposed by the power firms. The moratorium allows CIL not to pay any fine for the next three years even if it fails to fulfill its obligation.
The state-owned coal miner has signed only 14 FSAs out of 48 after the presidential directive forced it to sign supply agreements with power projects commissioned until December, 2011. Some power companies including NTPC have refused to sign the FSA citing provisions that favoured CIL.
The power minister and Association of Power Producers (APP) had written to the coal ministry raising their concerns over the penalty clause and import of coal. CIL had earlier made it clear that the company would not consider altering the provisions of FSAs which have already been cleared by its board. The company had also refused to give a timeframe for all the FSAs to be signed.
The ministry had asked the company to rework its penalty clause. Another ministry official said responses have been sent to the coal ministry and the matter would be discussed accordingly.