PMO to the rescue,Coal India told to ink legally binding FSAs

* FSAs to be signed for all power projects to be commissioned till end-March 2015

Written by ENS Economic Bureau | New Delhi | Published: February 16, 2012 12:36:41 am

In a major relief to fuel-starved power projects,Coal India was directed to convert all preliminary fuel supply pacts inked with thermal project developers into firm and legally-binding fuel supply agreements (FSAs).

Following an intervention by the Prime Minister’s Office (PMO),the state-owned coal major has been asked to sign FSAs for all projects due for commissioning till end-March 2015,provided they enter into long-term power purchase agreements with distribution utilities for power supplies. For projects commissioned up to December 2011,the FSAs need to be inked by March 31 this year. CIL has been told to ensure sufficient fuel supplies,even if it is forced to import coal.

The move would provide fuel supply certainty to around 35 coal-fired thermal projects — adding up to over 14,000 MW —that have been commissioned over the last couple of years and another 30,000 MW of fresh capacity scheduled for commissioning shortly. Terming it a decisive intervention by the PMO,private sector players,who had met the PM in early January on the issue,said the move brings about much-needed clarity on the fuel situation. The decision,which effectively settles a two-year long slugfest between the state-owned coal major and private power producers,is an outcome of the meeting of Committee of Secretaries (CoS) constituted by the Prime Minister to look into issues impacting the power sector,held on February 1.

“The proposed course of action has been approved by the Prime Minister… With the resolution of the immediate major problem,the attention of the Committee will now shift to other medium and long term issues affecting the power sector,” a statement from the PMO on Wednesday,which was put out first on social networking site Twitter,said. The afternoon statement forced a sharp rally among power sector stocks during late trade on the bourses.

According to Wednesday’s PMO statement,the FSAs by Coal India will have to be signed for maintaining the full quantity of coal mentioned in the Letters of Assurance (LoAs) for a period of 20 years,with trigger level of 80 per cent for levy of disincentive and 90 per cent for getting an incentive.

In case of any coal shortfall,Coal India will have to arrange for supply of coal through imports or through arrangement with other state-owned undertaking that have been allotted coal blocks.

Fuel Security

* Coal India would now have to convert preliminary fuel supply pacts into firm and legally-binding fuel supply agreements

* In case of any shortfall in coal from its own production,Coal India would have to arrange for coal supply through imports or with other state-owned undertakings that have been allocated coal blocks

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