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BW Businessworld

Idle Assets Come Under Scanner

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The coal ministry has been busy. After pushing for a coal regulator earlier this year to bring in more efficiency and transparency to the sector, it has now proposed an inter-ministerial group (IMG) to periodically review development of captive coal blocks and recommend blocks for de-allocation.

The group, headed by Zohra Chatterji, additional secretary of coal, will include members from the ministries of power, steel, law and justice, and the departments of economic affairs and industrial policy and promotion. Involving the other ministries concerned would also distribute accountability.

In the past, the coal ministry has de-allocated 25 coal blocks which belonged to NTPC, Damodar Valley Corporation, Maharastra State Mining Corporation, among others. 

Going forward, the coal ministry wantsto build consensus before it goes ahead with  de-allocations. It has recently issued 54 show-cause notices. Once the IMG is formed, it will take a call on what to do with these blocks.

According to ministry officials, the recent Comptroller and Auditor General (CAG) report and CBI investigations into coal block allocations have made them more cautious. They say that if the ministry de-allocates coal blocks now, it will seem it is doing so because of the investigations. "We do not want anyone to point fingers," says a ministry source.

The Prime Minister's Office (PMO), too is taking serious note of the sector. Coal ministry officials confirmed that three de-allocated NTPC blocks were given to Coal India (CIL) on orders from the PMO.











25 coal blocks have already been deallocated by the coal ministry

The PMO is also trying to sort out the stalemate over fuel supply agreements (FSA) between CIL and power producers. It  has accepted CIL's argument to scale down fuel supply guarantees from 80 per cent to 65 per cent for new FSAs. But if CIL is unable to supply 65 per cent of the contracted amount, it must face the usual 10 per cent penalty (0.01 per cent set by CIL earlier). According to the new terms, CIL must agree to supply at least 65 per cent in the first three years, 72 per cent in the fourth and 80 per cent in the fifth year. 

CIL's customers may or may not agree. Soon after reports of the new FSA conditions, NTPC CMD Arup Roy Chowdhury was quoted as saying, "We have no issues as long as CIL supplies coal. We have been given to understand that the company cannot supply more than 65 per cent in the first year, and that is all right with us."

However, an NTPC spokesperson has told BW that it has commissioned a capacity of 4,300 MW between 1 April 2009 and 31 December 2011 for which FSAs are yet to be signed. NTPC says it has conveyed to CIL that it will sign FSAs for the full quantity of coal as mentioned in the Letters of Assurance for a period of 20 years, where penalties will be triggered if supply falls below 80 per cent (and incentives if it exceeds 90 per cent).

A power ministry source says that settling for less than 80 per cent is difficult.

Essentially the matter is still open. CIL's board is expected to decide on the conditions on 5 July.

(This story was published in Businessworld Issue Dated 09-07-2012)