| NEW DELHI, April 17
NEW DELHI, April 17 Coal India's offer
to pay a paltry penalty for missing supply obligations will not
force the state-run monopoly to ramp up production quickly to
meet burgeoning demand in energy-starved India, power producers
said on Tuesday.
The world's biggest coal miner has been ordered by the
government, which owns 90 percent of Coal India, to sign
contracts agreeing to supply at least 80 percent of the coal
requirement of utilities that have been hobbled by scarce fuel.
The company's board approved the proposal on Monday and
offered to pay a penalty of 0.01 percent if it fell behind
"This is a task well begun, but only half done," said A.
Issac George, chief financial officer at GVK Power, referring to
the supply contracts that were proposed after industry captains
such as Ratan Tata and Anil Ambani approached Prime Minister
Manmohan Singh for an end to fuel shortage.
The penalty would apply only after three years and so
changes almost nothing in the short term for many power plants,
which have been running below capacity due to fuel shortage over
the past year.
Hemmed in by regulatory hurdles and land acquisition
problems, Coal India's production has stagnated over the past
three years and power companies were hoping a stringent penalty
clause in the fuel supply pact would have goaded the company to
take measures to boost output.
Coal India expects to raise its output to 464 million tonnes
in 2012/13, after producing about 436 million tonnes in the
fiscal year that ended in March - missing its scaled down
It would need an additional 64 million tonnes in the current
fiscal year to meet obligations under the new fuel pacts. But
the company may not be able to boost production in line with
demand and may have to resort to imports.
Coal India is expected to sign fuel supply pacts with power
producers for 20,000 MW capacity this week. Agreements for an
additional 40,000 MW capacity will be signed later.
"There is no repercussion in not meeting the shortfall. Once
again, the assurance is on a best effort basis, as before," said
Ashok Khurana, director general at Association of Power
The company, which went public in 2010, has been under
pressure from a shareholder - The Children's Investment Fund
Management (TCI) of the UK - not to give in to the government
diktat to supply coal cheaply to power producers.
Domestic coal is usually at least 40 percent cheaper than
global prices. Typically, supply guarantees come with an
additional charge to the consumer. It is not immediately clear
if Coal India would levy such a charge.
Some power producers such as state-run NTPC,
India's top utility, and private sector Lanco Infratech
see the revival of binding fuel supply contracts as a
positive sign that would help companies get easy funding for
"At least agreements will be in place. And now we can keep
working at ensuring there is more credible penalty," said K.
Rajagopal, CEO-thermal at Lanco Infratech, whose operational
1,800 MW plants would immediately benefit.
Lenders have been averse to funding projects that do not
have assured long-term fuel supply, delaying the ventures and
escalating their costs. "The fuel supply agreements will give
lenders more confidence," said Rajagopal.
India plans to add 76,000 MW capacity to its existing
191,000 MW in the next five years and would need to
significantly raise its coal output to fuel these plants. At
present, more than half of the total capacity is fueled by coal.
(Editing by Ranjit Gangadharan)