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BW Businessworld

PMO Intervention To Help End FSA Deadlock Soon

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With the Prime Minister's office intervening into the deadlock over the fuel supply agreements (FSAs) between Coal India and power producers, a resolution seems closer in sight.

On Wednesday, coal minister Sriprakash Jaiswal reportedly expressed the same sentiment. "I am hopeful that the issue will be resolved in 15 days and the remaining pacts will be signed," Jaiswal told PTI. He also added that the ministry could soften their stand if the PMO asked and if it was in the interest of the nation.

The Prime Minister's Office has called a meeting next week to resolve the issues related to fuel supply pact, with the Power Ministry not agreeing to the PMO directive that CIL assure power firms of providing 65 per cent of the total coal contracted.

The FSA issue was also discussed at a meeting called by the PMO last week. The meeting, chaired by Principal Secretary Pulok Chatterjee, was attended by Coal Secretary S K Srivastava, Power Secretary Uma Shankar and CIL Chairman and Managing Director S Narsing Rao, according to PTI.

"The Power Ministry is saying that banks are not accepting 65 per cent trigger level for penalty on CIL, as against the earlier directive of 80 per cent supply assurance".

If resolved, this would end the long stand-off where power producers like NTPC refused to sign FSAs on account of the lax norms set for itself by India's coal monopoly. In March, after being served with a Presidential Directive, CIL had agreed to sign FSAs with 80 per cent trigger level (penalties set in for coal supplies below this amount) but with only 0.01 per cent as penalty level. Recently however, the PMO suggested 65 per cent as the initial trigger level with the usual 10 per cent penalty rate. There is also a possibility that Coal India may need to import coal — through state-owned agencies like STC and MMTC — to fulfil the FSAs. How to price this however, is still under debate.

"CIL may need to import if the consumers want them to. However, given that several state utilities and private companies have their own import processes in place, the quantum of imports through CIL may remain difficult to estimate," says Dipesh Dipu, Director, Consulting, Mining at Deloitte Touche Tohmatsu India Pvt. Ltd.

The minister is currently in Kolkata and ministry sources say he may also take up the matter with Coal India, which is headquartered there. The company board is supposed to meet between 5th and 10th July to discuss the new FSA conditions suggested by the PMO. So far 27 of the 54 FSAs for 20,000 MW have been signed.

Asked about coal production, Jaiswal said there was a need to augment it in view of the requirements of power, steel and other industries. About Coal India, he was confident that "it will record a 7-8 per cent growth this year" stressing that it will achieve the production target for the fiscal.

The government has fixed a production target of 464 million tonnes (MT) for CIL, which accounts for over 80 per cent of the domestic output. Last fiscal, the PSU achieved an output of about 435 MT of coal as against a revised target of 447 MT.