Coal India will finalise 40 FSAs soon: CMD

State-run Coal India is expecting to finalise the pending fuel supply agreement (FSAs) soon. The company which has signed around 29 FSA with several power companies has yet to sign 40 FSAs, the firm's chairman and managing director S Narsingh Rao told CNBC-TV18

The chairman said that most power companies have indicated that they are keen to sign FSAs with new terms. "CIL's production will be enough to meet 65% of the requirement and if there is any shortfall, it can be bridged through imports. The concern ministries are working on price pooling at the moment," he said.
He also made it clear that there will be no involvement from the PMO's ( Prine Minister's Office (PMO's) in signing of FSAs. He also said that public and private companies have evinced interest in international inventory liquidation which would take at least 6-8 months. Current inventory stands at 54 million tonnes. Here is the edited transcript of the interview on CNBC-TV18. Q: Now that you seem to have agreed at the board level on the penalty clauses, shall we assume that you are in a position to sign most of the fuel supply agreements (FSAs) on August 13?
A: I guess no. On August 13, the final approval will be done. Thereafter, once we communicate to our subsidiary companies, they will start signing the agreements. Q: But you are hopeful that most of the pending FSAs will be signed now?
A: I hope so. Q: How many of them are pending because of these penalty clauses which had not been finalized?
A: 29 of them have signed. I think another 40 have not signed. We hope that they would also be signed during the month of August. 
_PAGEBREAK_ Q: Have you had any initial dialogue with them, do you think the kind of norms that you are putting out on the penalty clauses etc will fit the kind of requests or criteria that the power companies were looking at?
A: The pulling side is different but on the FSA side, from a flat so called penalty of 0.01 to the graded penalty today and also the absence of the so called moratorium obviously should be acceptable to the prospective PPA holders for signing the FSAs sooner than later. Q: This one and a half percent penalty clause which goes upto 5% and 40% depending on non-delivery, was it conceived with feedback from the power companies since you have had deliberations with them in the past?
A: We had deliberations with them in the past but, they were mostly related to the pulling of prices, not on the FSA side. But I guess the FSA is largely in line of the existing FSAs except that from 90% it has become 80% and the penalty is only 1.5% against 5%. So it is more or less in line with their expectation. Informally, when I have been talking about it, they were more or less comfortable I would say. Q: You think that the chances of you paying more than 1.5%, which happens only when you dip below 65% of the requirement, is very low?
A: I think so because this 65% is based on our projections for production during this year and the following years. We are confident that we will be more or less achieving our targets. If Coal India achieves its targets, then 65% is achievable. There will be no problem. Q: If you were to achieve only 65% and not 80%, what is your calculation of that 1.5% penalty, we have done some calculation and that comes to about Rs 50 crore, no more than that?
A: No that is if the pulling were to be acceptable to them and if we resort to import, that would be obviated. There will no need for a penalty. But if the pulling doesn't come into the picture for any reason, I am not saying whether it will come or it will not come but the power ministry has taken the responsibility to convince the consumers. If it happens then the possibility is also very low because we will be importing. Importing is not a major issue. Q: What is the latest on pulling? Have you worked on any preliminary details on the pulling mechanism which might be acceptable to all parties?
A: In fact, it is initiated by the power ministry and the CEA. They are working with the people. I hear at least one-two people have expressed their objection to that but, I don't want to dwell at length on that. Eventually, all the consumers should be agreeing to pay the additional price in order to pay for some below landing price for imported coal.
_PAGEBREAK_ Q: But surely you are privy to the kind of suggestions that are going on with pooling because I believe there has been a 25:75 mix which has been spoken about on who bears the cost of imported coal – what do you think would be an acceptable formulae?
A: That part is fine with us. We would be reducing 25% of the landed cost to the importing entities and that would be spread on indigenous coal. Let’s say 340-350 million tonne, but this is again subject to those indigenous coal consumers paying for that additional cost. Q: We have spoken about the penalties, what about incentives at 90% plus? Have you worked out any kind of modalities?
A: Incentive will also be exactly the mirror image of the same. Whatever 1.5-40% is there, above 80% it would be exactly the same. Q: What happens August 13 onwards, what is the procedure? Have you called for a meeting with all the power companies who have not yet signed FSAs and progressively in the next few days you will be looking to ink them?
A: Once that revised FSA is finally communicated to our subsidiary companies, they will write to the respective FSA, LOI holders to come and sign it. Then they would basically sign the FSAs. Q: Is the PMO going to be involved at all as an intermediary in this process?
A: No. It is basically the coal ministry advisory who will be involved in the process. Based on whatever we got from the coal ministry, the board has dwelled upon it and we have arrived at this decision. Ultimately, it is between Coal India subsidiaries and the consumers.
_PAGEBREAK_ Q: Recently you had offered liquidation of 70 million tonne of coal from your pithead, has that been lifted by any of the private players?
A: Some are showing interest, not only from the private but also from the public sector. But as you know, they are in inaccessible places and some of them are making arrangements. It will take some more time for them to lift this.
They also need to secure private sliding in consultation with the railways. They also have to finalise their transport contracts etc but, we are confident that there will be some additional liquidation taking place on account of that. Q: The entire 70 million tonne?
A: No, 70 million tonne is a tall order and in any case, we don't have 70 million tonne. Today as we speak, we have 54 million tonne. Now my guess is about 5-10 million tonne should be going on account of this in the next six to eight months of the current financial year. Q: One final question, there has been talk as you would have read this morning as well and last evening that the government is looking at divesting or getting back on the divestment programme and looking at selling small stakes in large companies like NTPC, SAIL, maybe even Coal India, do you think Coal India is a possibility and have you heard any kind of communication from the government along those lines?
A: No, I have no idea about that. Q: You don't know if there is any divestment plan with Coal India shares?
A: No, I don't have any idea.