Why are private power cos upset with new coal supply pact

Moneycontrol Bureau

Coal India's (CIL's) new model fuel supply agreement (FSA) for power companies has certainly upset private players who say the clauses in the document discriminates them from public sectors firms. They also go on to say that there are relatively easier terms for state-run power firms.

Earlier this year, it was agreed that CIL would sign fresh FSA with companies that have entered into long-term power purchase agreements for their power plants which have either been commissioned or will be commissioned on or before December 2015.

The new FSA was seen as a step toward solving problems in the power sector and to boost investor confidence in the industry. Now, that the FSA is made public, private companies not so enthused by it because of the following reasons.

Private companies are discriminated on grounds that they have to produce evidence in the form of confirmation certificates from state regulatory boards that they have supplied power to distribution companies. State firms don't need to fulfill this criterion.

The new agreement does not  have any provision for settlement in case of any disparity in procuring coal but the FSA provides for negotiation mechanism for public companies in case if there is any discrepancy.

Private players have to tender fresh security deposits while their state run counterparts can adjust the already deposited guarantees against the mandatory security deposit.

CIL which is mandated to provide coal to power companies has the right to terminate coal supply pacts if there is some non-agreement between the seller and buyer during joint assessment but such is not the case with public sector firms as they can seek government help in a similar scenario.