Coal India (CIL) has sought clarification from the government on whether the terms of the fuel supply agreement (FSA) it is signing with new power plants need to be modified again as the cabinet committee on economic affairs (CCEA) has put additional responsibility on the company to provide domestic coal to power capacity of 78,000 MW against the earlier envisaged 60,000 MW.
Sources said CIL is not in a position to cater to the full requirement of domestic coal for the entire 78,000 MW of capacity and,if the FSA
has to be signed according to the earlier terms,it could
default in meeting its commitment exposing the company to the penalty provision for non-supply of agreed quantity of coal to power projects.
According to the terms of the FSA agreed by CIL after a presidential directive last year,it is to provide 80% of annual contracted quantity of coal to all existing and future power projects coming up between April 2009 and March 2015,with 65% of this coming from domestic sources in the first two years (2013-14 and 2014-15) and the balance from imports.
Internal estimates of the coal ministry and the company suggest that if all the needs of 78,000 MW of power projects have to be supplied under the terms of FSA,the supply of domestic coal could fall to 56% in 2013-14,58% in 2014-15 and 63% in 2015-16 lower than the agreed quantity of 65%.
We are still not clear about the impact of the CCEA decision on our FSAs. It is premature to comment on the issue now, CIL chairman and managing director S Narsing Rao said. He,however,agreed that coal commitment under FSA was worked out on the basis of about 60,000 MW power capacity.
Sources in the coal ministry said that if the entire burden of higher coal
supply falls in the very
first year,they will seek revision of FSA so that lower quantity of domestic coal and higher quantity of imported coal could be supplied to power projects.
If this happens,CIL will need to import close to 78 million tonne (MT) of coal to meet its commitment of 80% coal to power projects.
With average landed cost of coal from Indonesia working out to be around R4,500 per tonne,the import bill for this coal could be in excess of R35,000 crore.
I do not see a problem of CIL not meeting its domestic coal commitment. As coal supplies will begin when long term power purchase agreements (PPA) are tied up by the developer,and there is always a lag between signed FSA and PPA,the supply commitment of of CIL will be less than FSA, said a power ministry official.
The domestic coal requirement for 78,000 MW works out to about 182 MT. While CIL is expected to provide 379 MT of coal for the power sector in 2013-14,it would leave only
about 104 MT for the new projects and the balance
will have to be met through imports.
The total production from CIL in 2013-14 is expected to be around 494 MT.