Have almost sorted out FSA issues with Coal India: NTPC

State-run NTPC seems to have ironed out issues with Coal India (CIL) over clauses laid out in the new fuel supply agreement (FSA).

CIL, which supplies coal to public sector and privately run power producers, added new pricing mechanism which upset buyers last year.
In an interview to CNBC-TV18, NTPC Chairman Arup Roy Choudhury said, he will soon sign coal supply agreement with CIL. "We are trying to sort out minor issues and right now I cannot give any deadline for signing FSAs," he said.
NTPC needs coal from its scheduled capacity which is likely to come on-stream this year.
Both companies have not been able to sign coal supply document last year due to difference of opinion over  quality linked  pricing of coal.
NTPC and CIL had differed on the issue of coal's calorific value. While the former wants coal not having less than 3,100 kilocalories (kcal) of calorific value supplied to its plants, CIL is keen to supply coal of different grades up to a calorific value of 1,900 kcal.
Despite NTPC stating that it will finally sign agreement with CIL, there is still no clarity on whether changes have been incorporated in the agreement.
With an annual requirement of 160 million tonnes of coal, NTPC procures over 80 percent of fuel for its coal-based projects from CIL and imports the remaining 20 percent. Below is the edited transcript of Choudhury's interview with CNBC TV18 Q: There has been considerable progress over the last few days with regard to NTPC, but I believe you are still a bit short of signing the fuel supply agreements (FSA). Are issues with Coal India still not resolved?
A: We are almost there. Both of us are working hard towards it and because we are with them in FSA for such a long time, we cannot suddenly sign another FSA with differences.
We have zeroed down on most issues, I think only one or two remain, and we expect to sign them very soon. However, having said that, our coal supply has not been affected. We have bought 16 percent more coal than the previous year.
As far Coal India is also concerned, 10 out of 16 of our coal stations are directly linked from their mines to our stations by our own merry-go-round (MGR).
So, we are the direct beneficiaries of however much Coal India increases production. We have agreed mutually that coal supply will not stop, but both sides are working very hard to try and iron out those small issues. Q. What remains the core point of conflict? Have the ministries, government or the Cabinet Committee of Investments (CCI) set any deadline by when companies and Coal India need to come to a decision on this issue?
A: Firstly, there is no deadline. Secondly, the common areas are known to both the ministries. The ministers have met, and have ironed out many issues. I think there are some issues, which are basic procedural ones.
There is an issue on third party which you all know on the quality of coal, and one on a minimum calorific value of coal which has to be supplied to us. We are trying very hard to iron these out, and I am in constant talks with the chairman of Coal India. Q: Given the point you have made about coal availability, are you more confident about the capex plans you have set and what looks like a achievable target for NTPC through the course of this year and next?
A: I think one must understand that we do not embark upon a project until we have the coal linkage, water, land and  environmental clearance. So we are very optimistic and upbeat that we will meet our capex plans. Over the last two years, we have been meeting all the capacity-addition plans.
So, at the moment I do not see any risk in achieving more than 14 gigs for the 12th Plan, which we have committed. We are already executing projects worth 18 gigs plus, therefore achieving 14 gigs does not look very difficult in the 12th Plan. Q: Where do things stand with the execution of the coal price pooling mechanism?
A: As far as coal price mechanism is concerned, it is an initiative which has taken by the government. NTPC is not very affected by it because our business model is pass-through. Q: Where do things stand with demand from the state electricity boards (SEBs) now? Has there been any improvement or does demand remain fairly tepid which might affect your plant load factors (PLFs) going forward?
A: First of all, our business model is on plant availability factor. We are always much above the minimum plant availability factor that is required. So that way there is no difficulty with the business model as far as my shareholders and returns are concerned.
You did bring about an issue of plant load factor which directly gets affected because of low demand from the SEBs. In that we have been seen that some of the SEBs have been increasing tariff  as far as 25-26-27 percent in the last couple of months.
This is a good trend. If it continues, then I think the buying of power and distribution through their system has to be brought to a cost-neutral situation.
The distribution companies (Discoms) cannot be taking a loss on their balance sheet. As long as that is not taken care of, this problem of mismatch will remain where we will be having generation capacity available in the country on one hand, but we are not able to consume the entire electricity which is generated on the other hand. Q: How much of a positive is Competition Commission of India’s approval yesterday of the North Karanpura for NTPC?
A: It is one 200 megawatt project, which we have been expecting for a long time, not because we had any differences with the coal ministry. The point was that our station is located at a place where coal is 500 metres below the ground and reaching that level will take at least 50 years for any coal mining company.
Secondly, it has water next to it, so it will probably produce some of the cheapest power in the country. That is why we were eager to set up this project and we have all the major clearances. So, this project can take up very soon which makes us very upbeat. Q: Your return on equity (RoE) had fallen to just under 12.5 percent in that previous fiscal, and since then with improvements that have happened in PLFs, do you think FY13 will end on a much better note?
A: I am very hopeful but I cannot talk on those numbers at the moment. It will end on a high note and you will see a lot of things happening. Q: Do you see this as an increasing trend going into next year FY14, the RoE issue?
A: Our commercial addition has been constantly increasing. So there is no doubt now that we will be maintaining this strength throughout.