Coal India says ready to review force majeure in FSAhttps://indianexpress.com/article/news-archive/web/coal-india-says-ready-to-review-force-majeure-in-fsa/

Coal India says ready to review force majeure in FSA

This change,however,of stance will not be at the cost of the company’s overall commercial interests,a senior official said.

Under pressure from the power utilities,state-run Coal India (CIL) is open to the possibility of reviewing certain aspects of the force majeure clause in the Fuel Supply Agreements (FSAs) being currently inked with power firms.

This change,however,of stance will not be at the cost of the company’s overall commercial interests,a senior official said.

“We are open to reviewing certain clauses in the FSAs,which the power producers feel are hurting them,” the official said.

The argument is that when the company’s production target has been pegged at 470 Million Tonne,against which it is being asked to supply 520 MT,it should tread cautiously.

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Possible signs of a thaw was visible after a recent meeting between CIL chairman S Narsing Rao and NTPC CMD Arup Roy Chowdhury,wherein Rao understandably endorsed NTPC’s contention that CIL can have a re-look at the force majeure provisions.

Differences had already emerged between the power producers and CIL on the issue of penalty clause in the FSA,wherein CIL has inserted a clause under which,a penalty of 0.01 per cent for failure to supply the contracted amount of coal would only kick-in after three years.

The force majeure clauses has triggered concerns among electricity producers,with power minister Sushilkumar Shinde writing to the Principal Secretary to the Prime Minister Pulok Chatterji that CIL has diluted the penalty in a manner that it serves no purpose of being a deterrent.

Besides issues like force majeure and automatic sampling are heavily loaded against power producers and will create uncertainty and confusion,Shinde told Chatterji in a letter on May 9.

The force majeure provisions of the draft FSA includes breakdown of equipment,failure of contractors to deploy machinery or spare parts,shortage of explosives and even power cuts.

In the event of these exigencies CIL can claim immunity from liability. Sources said breakdown of equipment and paucity of spare parts could be couple of provisions,which can be reviewed.

“We have legacy issues which have led to the current spate of problems in coal production. Since our production target is 50 MT short of the expectations,as a precautionary measure we inserted these provisions,” a source said,and added that fresh discussions may be held with the coal ministry on the issue.