FSA: Problem pushed from supply end to distribution end?

On February 14, the government took the first step to clear the logjam in the power sector. It asked Coal India to sign agreements with power companies guaranteeing to supply coal that it had promised them even if it requires importing coal.

The companies that will benefit are those, which had a letter of assurance from Coal India, which have come up by December 2011, which will come up by 2015 and which have power purchase agreements (PPAs) with state electricity boards (SEBs). Industry insiders say, this directive will mean providing coal to around 25,000 megawatts of power units already commissioned and further 60,000 megawatts of power units that will come up by 2015. In the coming year itself, Coal India may have to supply an additional 70-80 tonne of coal to power companies, which is challenging even if the company drew down inventories and increased productivity. Further even if Coal India managed to arrange the supplies, the railways have systematically not been able to provide more rakes. Also, Coal India has yet to develop the infrastructure to import. This raises questions like, will Coal India's move to keep its commitment to power companies deny coal to other sectors? How will Coal India price the imported and domestic coal? Who pays the penalty if Coal India is ready with the output, but railways are not ready with rakes? Has the PMO only pushed the problem from the upstream raw material end to the down stream distribution company end, which is already weakest link in the chain? BK Chaturvedi, Planning Commission member and head of several committees related to the power sector, Partha Bhattacharyya, former chairman and managing director of Coal India and SK Tuteja member of the Shunglu Committee share their views with CNBC-TV18 and answers these myriad questions. Below is the edited transcript of the interview. Also watch the accompanying videos. Q: If some number crunching has been done what is the extra coal commitment that Coal India will have to make for power companies that are already underweight by December 2011? There are varying figures, do you have any number? Chaturvedi: Coal India had already signed MOUs with them promising 50%. They had also signed MOUs with other companies, where they had promised 90% and more. So they won't get the incentive and they may cap them at 90%. Whatever surplus they would provide to the companies with whom they have already tied up 50% they will have to do an additional 30%. Plus they will pick up their production. Their production in the last two years has lagged. They have around 70 million tonne of stock and as they take up new mines their production will pick up. So, they should be able to provide it. _PAGEBREAK_ Q: Can you give us an idea of what will be the extra coal commitment that CIL will have to deliver? Bhattacharyya: First I must state a clear disclaimer