Coal India may now be allowed a lower fuel supply commitment of 65% to power companies as against 80% prescribed earlier, but will pay a much higher penalty of up to 40% of the value of the coal in short supply in case of failure to meet this reduced supply obligation. Earlier, the penalty agreed by the coal PSU was a trifling 0.01%.
Official sources said the Prime Minister’s Office (PMO), which under pressure from the coal PSU revised its coal commitments downwards to 65% late last month, has insisted on a big jump in compensation to ensure the company does not falter even on lower levels of fuel commitment. The board of the state-run company is expected to meet on July 5 to take a final decision on the proposal to introduce the new provision in the new model fuel supply agreements (FSAs).
The CIL board had earlier approved a 0.01% penalty for signing FSAs with power projects commissioned up to December 31, 2011. The penalty proposed for FSAs inked up to March 31, 2009, is 10%.
As per the new formula approved by the PMO, CIL will pay a penalty of 20% for supply levels up to 5% below the agreed level (65%) and 40% if the supply levels falls below the 5% mark. This compensation will be applicable for the first four years of the FSA.
From the fifth year onwards, the compensation structure would be kept similar to the provisions in the FSAs applicable to power stations commissioned up to March 31, 2009, and fixed at 10% at supply up to 5% below the trigger level of 80%, 20% for supply from 5-10% below trigger level and 40% for supply more than 10% below the trigger level.
?The PMO has endorsed the formula agreed upon by the coal ministry earlier. Coal India will take a final call on the matter this month,? said a coal ministry official.
Sources said the higher penalty is aimed at pacifying coal consumers like NTPC which had cried foul when CIL proposed a sharply lower level of penalty (0.01%) and put a moratorium on paying even this small penalty for first three years of the FSA citing shortages in coal production.
Earlier, at its meeting on June 22, the PMO gave fresh directions to CIL, the sole supplier of fuel to power companies, to further revise terms and conditions of its contentious fuel supply agreement and enter into new FSAs with power firms with a guarantee to meet 65% of their coal requirement for the first three years and raise this quantity to 72% in the fourth year before reaching the earlier agreed 80% level in the fifth year of supplies. The PMO and a Presidential order had earlier directed Coal India to sign fuel supply pacts with utilities promising to meet a minimum 80% of annual supply commitments or pay a penalty.