New FSA: No major variation for private & PSU cos, says CIL

Coal India's new model Fuel Supply Agreement (FSA) for power companies has not really been welcomed with open hands, one could say. Coal India's model FSA has private power companies up in arms. The model FSA proposes different terms for private and PSU companies.

Some of the issues that private companies have raised include dispute settlement, and the right to terminate that they believe has been weighed against them in the model FSA.

The Association of Power Producers is infact opposed to two different versions of FSAs

Coal India chairman S Narsing Rao says there are not any substantial variations between the public sector version and the private sector version, but a couple of clauses relating to, for example, guarantee and security deposit.

Below is the edited transcript of his interview on CNBC-TV18.

Q: Why do you have different terms for public sector undertakings and different terms for private companies?

A: I don’t think there are any substantial variations between the so called public sector version and the private sector version, but a couple of clauses relating to, for example, guarantee and security deposit. Obviously, we have to protect ourselves in terms of any likely default. In the existing the power sector, the public sector people already have been covered by that. Therefore, it is only the continuation. Private companies are all totally new ones. Therefore, we made a provision we made a provision for security deposit.

Regarding, the so called termination, you are talking about basically, one of the clauses talks about that if they fail to revalidate the PPA then within whatever period given in that, we have the right to terminate. Public sector companies have 100 percent PPA with the discoms. So, there is not really an issue. In the case of private, suppose if they fail to revalidate their PPAs then if they utilise coal and if they are not supplying that generated power to the discomms, the purpose will be defeated, the purpose for which the relatively cheaper coal is being supplied. These are very minor variations. There are no major differences.

Q: Why not have the same rules for the private and the public sector?

A: These are not really major issues. The payment is basically the security deposit. They are all our existing customers. Therefore, there are not major issues there. They are already covered by that. New people will have to pay this security deposit. One of the things is that the arbitration clause, between them and us, is referred to the Government of India because they are all also owned by the government. These are the two variations.

Q: Are you willing to change this model FSAs? But considering that the private sector is not happy, they have come forward with their suggestions, they have come forward with their complaints, are you willing to change this FSA model?

A: I don’t think we are really considering any modifications at this point in time.

Q: You are not willing to even consider modification of the model FSA, even though the private producers are not happy. Why is it that you are allowed to unilaterally terminate a contract with a private producer and you are making the differentiation with the public producer? Is the private producer also not providing energy to this country?

A: Agreed, but under what circumstances is that termination, you can refer to that. It is not fair because it’s out of context, it’s only failure to revalidate the PPA.