Coal ministry enters FSA regime,scraps linkage panel

The Union coal ministry has finally decided to discontinue the standing linkage committee,set up in 1979 to govern coal...

Written by Indronil Roychowdhury | Kolkata | Published: August 20, 2010 12:35:41 am

The Union coal ministry has finally decided to discontinue the standing linkage committee,set up in 1979 to govern coal supplies,and enter into a full-fledged fuel supply agreement (FSA) regime. Although the New Coal Distribution Policy incorporated FSA clause in 2007,the government took three years to finally make FSA effective.

A coal ministry official told FE that the coal consultancy committee in its meeting on Monday decided to discontinue the standing linkage committee and make FSA the only governing clause for coal supplies.

An FSA implementation monitoring panel would be incorporated to monitor both the supplier and the taker stick to the guideline. It would also function as a body for settlement of disputes arising out of FSA.

Coal India (CIL) chief general manager (marketing) A Roy said although the company was yet to receive any formal communication from the ministry on the standing linkage committee,the scrapping would actually mean sending all the linked consumers under CIL’s purview. ‘Giving linkage was completely a matter of the ministry and the ministry although in consultation with CIL determined the quantity of supply to a consumer,it governed every aspect of the linkage system,’ he said.

Roy said CIL was looking for a comprehensive guideline from the ministry as to what it would immediately do with the existing linked consumers and the consumers whose applications for fresh linkage was lying with the ministry.

However,the ministry’s decision to make a full fledged entry into the FSA regime clears the air that CIL has no problems in supplying its committed amount and that it had the capability of complying with the trigger norm,which binds both the supplier and the consumer to supply and lift at least 90% of the agreed quantity. The 90% trigger level applies only for the power sector.

The FSA regime would help CIL get a better valuation of its forthcoming IPO,since it speaks of achieving certain production level on whose strength it would meet the challenge of fulfilling the trigger norm.

CIL,for 2010-11 committed 376 million tonne of coal supplies through the FSA route,although the FSA was not virtually implemented considering supply constraints.

NTPC wanted an ‘easily alterable short-term linkage,’ to substitute FSA as long as CIL was not able to supply steadily but the coal major argued that the short supply was not for shortage of production but for shortage of availability of railway rakes. A deemed delivery clause in the FSA,which clearly mentioned that CIL would not be held responsible for short supply emanating from problems of transportation,would protect it from being caught on the wrong foot and there was no problem from its side to enter into the FSA regime.

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