Companies

Linkages: Coal India likely to get relief

Pratim Ranjan Bose Kolkata | Updated on June 03, 2011 Published on May 29, 2011

Ministry also proposes to free company from ensuring end-use of coal supplied on pacts





The Centre may soon amend the National Coal Distribution Policy (NCDP).

This will be to free Coal India Ltd from the ‘responsibility' of meeting the demand of coal in the country and ‘compulsorily' issue letter of assurances (LoA) for due conversion into fuel supply agreements (FSA).

Discussions are also on to free the company from the legal responsibility of ensuring the end-use of the coal sold through FSAs.

Both the issues are slated to come up for discussion during the review meeting to be convened by the Coal Ministry expectedly on June 8.

According to sources, considering the slow growth in domestic production – primarily due to environmental concerns – CIL has already developed a stockpile of over 100 million tonnes worth of LoAs granted to the power sector. The LoAs were offered against linkages granted by the Ministry.

The company recently clarified to the Ministry that it can honour only 41 mt worth of LoAs issued to the power sector for 12 gigawatt (GW) capacity expansion during 2011-12. This is over and above the existing supply pacts worth 306 mt towards 65 GW capacity.

While power gets a priority in the allocation of coal, the situation is even worse in the non-regulated sectors such as steel, power, cement and others. According to the Coal Consumers Association of India (CCAI), cement sector alone has 3-4 mt of pending LoAs before the CIL.

Legal implications

“It was an impractical policy. The issuance of large number of LoAs, bulk of which cannot be honoured in the foreseeable future, is creating a situation where CIL may be dragged to court for non-compliance of NCDP,” a source told Business Line. According to him, the legal implications have particularly increased as investors have availed themselves of bank finance against the LoAs for setting up industries.

Even more perturbed is the Coal Ministry, which is facing mounting pressure from the consumers, especially the power sector, for honouring its linkage commitments. A section of coal consumers suggest that to escape the heat, the Ministry has already been extremely slow in processing applications for linkages.

End-use restrictions

Meanwhile, CIL claims that the responsibility of ensuring the end-use often leads the company to legal hassles. In a recent investigation by a Central agency, an Assam-based cement grinding unit was allegedly found to have been running on cheap illegal supplies from Meghalaya while selling the CIL coal in the open market.

“We are a coal company. We want to focus only on producing and selling coal,” a CIL official said.

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Published on May 29, 2011
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