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Power developers such as Reliance Power, NTPC, and India Bulls have got support from the most unexpected quarter — the Coal Ministry. The Ministry has supported the developers' call for review of the new fuel supply agreement (FSA) of Coal India Ltd.
The producers termed the new FSA as having too many escape clauses for the supplier and loaded against the developers.
A meeting is expected to be held between the buyers and the seller on May 10. Mr Ashok Khurana, Director-General, Association of Power Producers, said, “First and foremost, the review clause gives the sole discretion to Coal India to terminate the agreement unilaterally, creating uncertainty regarding the tenure of the FSA.”
“It is an easy way for Coal India to escape almost scot-free by not supplying its committed quantities,” they say. Earlier, the quantum of penalty was 10 per cent, now it is 0.01 per cent.
The penalty would be operative only after three years from the date of signing of FSA which effectively means that the FSA will start only after three years and will have an effective term of two years thereafter, the producers say.
In the new FSA ,the clause dealing with force majeure trivialises the entire agreement by including frivolous reasons such as ‘shortage/cut in power supply', ‘non supply/delayed supply of equipments or spares' etc, he said.
“The net result of this FSA is that it absolves Coal India of its commitments and returns to business as usual (supply on best effort basis),” he pointed out.
Though some of the developers have inked the agreements because of fuel supply constraints, the general consensus is that Coal India is making use of its monopolistic situation, those from the industry said.
On the review of the FSA after five years, power developers say that this clause provides undue liberty to the seller as ‘aggrieved party' to exercise the right to terminate the agreement. They say that the scope of review should be agreed upon upfront instead of leaving it open-ended. The developers want it to be modified in line with the previous FSAs executed in 2009.
With regard to the clause on compensation on short delivery/lifting, the developers feel the rate of compensation for the ‘failed quantity' is too little a penalty for non-fulfilment of obligations. It is hardly a disincentive and will not discourage low fuel suppliers.
Till Monday, 10 FSAs were signed. Out of these, four each were signed with Rajasthan Rajya Vidyut Utpadan Nigam Ltd and Bajaj Hindustan Ltd and two with Lanco Anpara Power Ltd.
“There is a list of around 50 power companies. However, FSAs would be signed with 38 of them. This is because, fuel supply pacts can be signed only with producers who have signed power purchase agreements with distribution utilities,” said a Coal India official.
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