CIL independent directors nix fuel supply agreements with supply guarantees

Independent directors on the board of Coal India Ltd (CIL) have blocked a proposal to sign 20-year fuel supply agreements (FSAs) with power producers that involved a guarantee to supply at least 80 per cent of the commitment under government orders.

According to unnamed company sources cited by The Times of India, the move was opposed by all independent directors saying the level of minimum supply guarantee would not be fair to the company since fulfilling the minim supply condition was a near impossibility.

On 15 February the prime minister's office had asked CIL to sign the supply agreement with power projects that were either ready by December or were expected to be commissioned by March, 2015, and had entered into long-term power purchase agreements.

The decision was taken on 1 February at a meeting of the PM's panel of secretaries set up to address power sector woes. The agreements were to include the condition that in the event the supplies were to fall short of 80 per cent of the contract, the company would have to make up through imports or face a penalty. Import costs are twice the cost of domestic coal. However, the company would be able to claim incentives if it managed to supply 90 per cent of the contract.

The board is likely to take up the matter again later in the week. A draft of the FSA had been drawn up and was awaiting approval.

(See: Foreign investor challenges CIL, government over coal pricing)