FSA welcome but clear hurdles for CIL to perform: Ex-CMD

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FSA welcome but clear hurdles for CIL to perform: Ex-CMD

State-run Coal India (CIL), agreeing to sign the Fuel Supply Agreements (FSA) with private-sector power firms to ensure sufficient supply of dry fuel has not come as a surprise to P.K Sengupta former chairman of the country’s largest coal producer.

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State-run Coal India (CIL) will be able to ensure supplies to power companies even if it misses domestic production targets, says PK Sengupta, former chairman of the country's largest coal producer.

In an interview to CNBC-TV18, Sengupta said CIL will have to import coal to meet its obligations to several power companies.

CIL will sign by March end agreements for supply of fuel to power projects commissioned up to December 2011.

Even in the past, CIL has signed FSAs with bulk customers like power plants to ensure supplies and it gets an incentive for supplying at least 90% of the contracted amount, while the utility faces a penalty for failing to lift that amount. The plants have been complaining that there is no penalty on CIL for failing to supply coal, and that power plants which came up after 2009 are not getting to sign any FSAs.

Meanwhile, CIL, which accounts for over 80% of domestic coal production, has scaled down its production target for the current fiscal to 440 MT(metric tonnes) from 452 MT. The public sector firm missed its production target last fiscal and produced 431.325 MT of coal against the revised target of 440.20 MT.

Sengupta also said that the company will have to liquidate 25 MT coal going forward.

Did You Read: To sign FSAs based on 12th Plan project list: Coal India

Below is an edited transcript of his interview. Also watch the accompanyig videos.

Q: It looks like there are almost 25,000 megawatts of power companies that will be asking for power and some of it almost immediately. Is Coal India positioned to be able to supply all the quantum of power and would you have some back of the envelope calculations of how much your commitment would increase?

A: Let me state a disclaimer that these views are very personal and I do not have an official capacity to talk about it. As an industry watcher, you can get my views. If Coal India has issued a letter of assurance to any of the companies and they are getting ready to commission and take coal, I think Coal India is obliged to supply coal.

The fact that Coal India has been asked to sign FSA and commit 80% for 20 years, this was not unexpected. The only problem Coal India has is its major constraint on increasing coal production and some of the reasons were possibly beyond the control of the company. So while Coal India is being asked to sign fuel supply agreement and increase coal supplies, I think I am quite sure that the government will take other decisions, which will remove those constraining factors, which are coming in the way of Coal India increasing coal production, factors beyond the control of the company. Coal India will have to do a little more than what it is doing at this point of time.