The power ministry?s call to defer the implementation of a fuel supply agreement (FSA) regime hasn?t impressed Coal India (CIL), although the coal ministry is reportedly eager to consider it.

According to a coal ministry official, since CIL has failed to supply the required coal to thermal power plants, deferring the FSA regime till CIL was able to meet the fuel requirement of thermal power stations would have benefited the coal major.

Deferring the FSA regime doesn?t seem to be feasible, as CIL has already signed 1,540 FSAs, of which 110 are with power-producing companies, said a CIL official. According to CIL?s chief general manager, marketing, A Roy, even if power plants don?t get the required coal, it will not catch CIL on the wrong foot since the short supply is because of the railway?s inability to supply enough rakes, not due to a shortage in production by CIL.

?There is a deemed delivery clause in the FSA, which clearly mentions that CIL cannot be held responsible for short supply emanating from problems of transportation and other causes not under CIL?s management,? Roy said. CIL has committed 376 million tonne of coal through FSAs and the company hopes it will not face problems in offering that amount. If the railways failed to deliver, CIL can?t be blamed, added Roy.

The FSAs with power sector companies are subject to a 90% trigger level, which means both the taker and the supplier has to lift and supply 90% of the agreed quantity. If either of them fail in achieving the trigger level, it will have to pay a penalty.

However, the power sector?s demand of deferring the FSA regime was not intended to help CIL, but to help get coal according to requirements, which vary from quarter to quarter depending on seasons. If power plants have to lift 90% of the agreed quantity, it requires maintaining a certain inventory round the year involving additional costs.

The power ministry had recently proposed substituting the FSA with ?easily alterable short-term linkage? for the time being, and that power plants lift coal according to their requirement. Although the coal ministry has not yet replied to the power ministry on the issue, a ministry official said a group was evaluating whether the power ministry?s proposal would be beneficial to both the sectors.

According to a CIL official, FSA entails a disciplined manner of supply and off-take and coming out of it would mean coming out of that discipline. FSA has some rigidity in terms of an agreed quantity and trigger level and the power sector seems to look for flexibility in such areas.

The official also added that the power ministry, besides seeking to defer the FSA regime, has also asked the coal ministry to persuade CIL to supply at least an additional 40 million tonne over its commitment of supplying 376 million tonne through FSA, since many thermal power plants in the country will not be able to import 15% of their requirement as stipulated by the coal ministry.

Also, in many cases, imported coal doesn?t work since the plants are not designed to run on such coal and the power ministry has argued that if CIL agreed to supply an additional 40 million tonne in 2010-2011, many newly-commissioned plants would not remain non-producing for want of feedstock.