| NEW DELHI/MUMBAI
NEW DELHI/MUMBAI Aug 7 State miner Coal India
agreed on Tuesday to pay penalties for failing to
provide sufficient supplies to new Indian power projects that
range from 1.5 to 40 percent of a shortfall, depending on the
level of default.
It also agreed to pool the prices of imported coal with
domestic supplies but said a final decision on this issue would
be taken by the Central Electricity Authority. Such a pricing
system would work only if all domestic consumers are willing to
accept the resulting higher price, the company said.
"We have no objection to pooling of prices if it is
acceptable to all stakeholders," Coal India Chairman S Narsing
Rao told reporters after a board meeting.
The move to fix penalties follows the company's agreement
last week to supply a minimum of 80 percent of the coal needed
for new power projects, bowing to a condition set by the
government, and paves the way for it to sign a fuel supply pact
for 48 projects.
Coal India had stipulated that it may use a mix of up to 15
percent imported coal versus 65 percent domestic.
Coal India, the world's largest coal miner, produces nearly
80 percent of the country's domestic coal supply of about 550
million tonnes but has struggled to increase local supplies for
years because of failure to get swift environmental and
regulatory approval and inadequate railway infrastructure.
The miner had earlier sought to pay only 0.01 percent of the
shortfall in supply, while utilities asked for 10 to 20 percent.
On Tuesday, the Coal India board agreed to pay a 1.5 percent
penalty if its supplies amount to 65 to 80 percent of the
contracted volume and 5 percent if they reach 60 to 65 percent,
its chairman told reporters after the board meeting.
Penalties would rise to 10 percent for 55 to 60 percent, 20
percent for 50 to 55 percent and a maximum of 40 percent for
supplies of less than 50 percent of contracted volumes.
"It's not very ominous. Obviously, it's more than they
initially wanted, but we should also factor in that they are
allowed to import coal to make up shortfall," said Murtuza
Arsiwalla, a sector analyst with Kotak Securities.
The miner typically puts a 10 percent penalty clause in its
fuel supply pacts with customers.
It prices domestic coal 45 to 70 percent below international
prices, in part to keep costs low for power companies. Pooling
prices would allow the cost of more expensive imports to be
distributed to more customers.
Coal India plans to import 20 million tonnes in the current
fiscal year ending March 2013 and 30 million tonnes in 2013/14,
Initial imports will be done through state agencies State
Trading Corp and MMTC, he said.
Ahead of the announcement, shares in Coal India, the
country's fourth-largest company by market value at $39 billion,
closed 0.3 percent higher in a firm Mumbai market.
(editing by Jane Baird)