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Rao: Fine-tuning
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New Delhi, Aug. 7: Coal India Ltd has agreed to pay a hefty penalty of up to 40 per cent if it fails to supply the committed quantity of the fuel to power firms.
“If Coal India supplies below 50 per cent (of the contracted quantity), the fine will be 40 per cent,” chairman S. Narsing Rao said after the board meeting here today.
The penalty amounts to 40 per cent of the value of fuel not supplied.
The board in its previous meeting in Calcutta a week ago had decided to meet 80 per cent of the fuel requirements of a power firm, with 15 per cent coming from imports.
The penalty clause could pave the way for the fuel supply agreements (FSAs) to be signed with 48 power producers, which have commissioned units after March 30, 2009.
A calibrated structure for the fines have been put in place: 1.5 per cent fine for 65-80 per cent supply, 5 per cent for 60-65 per cent; 10 per cent for 55-60 per cent; 20 per cent for 50-55 per cent and 40 per cent for less than 50 per cent supply.
CIL had sought to pay only 0.01 per cent of the shortfall in supply, while power utilities had asked for 10-20 per cent.
Rao said the board had given in-principle approval to the pooling of prices of locally produced and imported coal provided all players agreed to pay a higher cost for local coal. He said price-pooling could not be done on a case-to-case basis and would have to be applicable to the entire sector.
“A mechanism of pooling of prices is simple but all domestic coal consumers should be willing to pay some additional price to fund or support the import price,” he said.
“We have no objection in implementing price pooling if it is acceptable to stakeholders.”
“Initially, State Trading Corporation and MMTC will do it (the import). Later, Coal India will also start importing on a small scale so that it is not totally dependent on others over a period,” Rao said.
The strategy paper of the Central Electricity Authority (CEA) estimates a shortfall in domestic production of coal by about 34 million tonnes (mt) in 2012-13. However, this can be met by importing only 20mt because it will be of better quality with a higher calorific value.
With pool pricing and import, Coal India will be able to supply 80 per cent of the fuel to feed a power production capacity of about 1.05 lakh megawatts, which amount to half of the country’s total capacity.
Domestic coal availability for the power sector is around 347mt in 2012-13 and an estimated 381mt for 2013-14.
According to CEA estimates, pool pricing will increase prices by at least Rs 105 per tonne. It will effectively raise power tariffs by 2-5 per cent (or 6-7 paisa per unit).
The issue of penalty has been a bone of contention between Coal India and power utilities. Power firms, led by NTPC, had been opposing the “meagre” penalty of only 0.01 per cent and that too applicable after three years of shortfall. They also refused to enter into fuel pacts till the resolution of the issue.
So far, only 29 companies, including Lanco, Reliance Power (Rosa plant) and Adani have signed pacts with the state-run coal behemoth.
The government had in April issued a directive to Coal India to commit a minimum 80 per cent of supply to power producers, failing which it would attract penalty.
He added that the basic decision had been taken by the board. The rest are operational details to be worked out by the Central Electricity Authority (CEA).
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