The Hindu Business Line : Coal India enters into firm pacts with most customers

Having initiated the process of entering fuel supply agreements (FSA) — as was prescribed by the New Coal Distribution Policy (NCDP) — for little more than a month now, Coal India Ltd (CIL) has entered firm supply pacts through its production subsidiaries with approximately 95 per cent of the existing valid linked customers.

According to company sources, out of a total of 1,000-1,100 linked customers including the power sector, CIL has so far entered into firm pacts with 900 customers from the non-power sector. The company is expected to supply coal according to the new policy beginning mid-July.

While model FSAs are circulated to the power sector (both public and private), firm pacts are expected to be in place within June 30, sources say that there are still some uncertainties about coal supplies to the small and medium industries, consuming less than 4,200 tonne a year, in a number of major consuming States.

This is primarily due to lukewarm response on the part of the States to enter the pact through a nominated agency. In several cases, the States have not even nominated agencies.

It may be mentioned that in the existing system sponsoring agencies from the State are granted linkages to supply to the SME sector. In the new policy, the State-nominated agencies will have to enter into firm supply pacts for inclusive of take-or-pay clauses.

Producers will sell coal at a notified price to the nominated agency. The latter will be responsible for supplying the same to the SMEs on cost plus basis. In a shift from the linkage era, coal companies will have no responsibility to ensure the end-use of coal once sold.

CIL customers

Responding to the call, nine State Governments — Assam, Chattisgarh, Jammu and Kashmir, Madhya Pradesh, Maharashtra, Nagaland, Orissa, Rajasthan and Uttar Pradesh — have so far entered into FSAs with CIL subsidiaries. Uttar Pradesh, Maharashtra, Orissa and Chhattisgarh are major consuming centres of CIL coal.

Gujarat, which has a vibrant energy market, has nominated four agencies but none entered the pact. Similarly, little response was available from Punjab and Bihar. According to sources, none of these States is a major-linked buyer (for SME use) of CIL. Southern States have not shown any interest either.

Among the major traditional consuming centres having substantial population of coal-based small and medium industries Jharkhand has not even nominated the State agency to enter the FSA.

West Bengal, where CIL is headquartered, has nominated West Bengal Mineral Development Corporation. However, supply pacts could not be reached as the nominated agency wanted to procure the same through another agency, which is not permitted in NCDP.

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