1. Private players say CIL escaping FSA obligations

Private players say CIL escaping FSA obligations

Private power producers have accused Coal India of escaping its obligations under the fuel supply agreements (FSAs) by under-filling the rail...

By: | New Delhi | Updated: February 6, 2015 4:47 AM

Private power producers have accused Coal India of escaping its obligations under the fuel supply agreements (FSAs) by under-filling the rail rakes they book for transporting FSA coal to them. Private players say CIL resorts to a practice of booking rakes that are enough, or even higher than required, for meeting the FSA obligations, and then under-utilising the rake capacities.

This, the power producers allege, has led to rise in expensive imports of coal and thereby cost of power. Coal imports are expected to reach 130 million tonnes (mt) by FY15, up from around 100 mt last year.

Under the FSA, if CIL books rakes that are only sufficient to load below 65% of the estimated FSA supplies, it is liable to penalty for non-compliance. However, in most cases, CIL books rakes with capacities to carry 80% FSA coal and escape the penalty, even though the actual quantum of supplies would be much less and often less than the FSA quantity.

As per industry estimates, nearly 10,000 MW of thermal power capacity with long-term power purchase agreements (PPAs) will require to import coal as the some of the coal mines being auctioned will start producing only after 2-3 years.

“The landed cost of imported coal at most power plants is almost 100% higher than landed cost of coal supplied by CIL. Power producers are forced to procure costly imported coal which hikes the cost of electricity by around R1.2 per unit while the average tariff for supply of electricity is around R5 per unit,” an industry source told FE on the condition of anonymity.

The power producers said that the railways has been negligent of conducting due diligence when it comes to rake offers made by CIL and is therefore also responsible for the sorry state of affairs. The railways should only make available realistic rake capacities to CIL after taking into account its loading capacities in the past.

As FE reported earlier, railways had denied these charges and blamed CIL for lack of loading capacity and coordination .

“If railways stop accepting the entire offer, Coal India will be under tremendous pressure to increase the coal production and loading capability to avoid any penalties under the FSA, therefore railways can contribute positively to deal with the whole issue of prevailing coal supply shortage in the country.” the source added.

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