core sector communique

PM initiates action to address issues of coal supply for power projects

On 18th January, 2012, a delegation of industrialists representing the majority of power producers in the country met the Prime Minister under the aegis of Association of Power Producers. They brought to the notice of the Prime Minister key issues affecting the power sector. They informed that the most important and immediate problem is inadequate supply of fuel, especially coal to power plants. They informed that Coal India Limited has been insisting on signing sign fuel supply agreements (FSAs) with assurance of only 50% of the required quantity with the result that no FSAs have been signed since April 2009.

The Prime Minister assured the delegation that PMO will work out a road map to deal with the problems relating to power sector and, to this end, a Secretary level Committee headed by Principal Secretary to Prime Minister will deliberate on the issues with a view to finding out pragmatic solutions. The Committee would first focus on the short-term issues and suggest, within a month, the immediate steps to be taken.

As instructed by the Prime Minister, the Committee headed by the Principal Secretary to the Prime Minister met on 1st February 2012. During the meeting it was agreed that Coal India Limited will sign FSAs with power plants that have entered into long-term PPAs with power distribution companies and have been commissioned/ would get commissioned on or before 31st March 2015. For power plants that have been commissioned up to 31st December 2011, FSAs will be signed before 31st March 2012. The FSAs will be signed for full quantity of coal mentioned in the Letters of Assurance (LoAs) for a period of 20 years with trigger level of 80% for levy of disincentive and 90% for levy of incentive. In case of any shortfall in fulfilling its commitment under the FSAs from its own production, Coal India Limited will arrange for supply of coal through imports or through arrangement with State/Central PSUs who have been allotted coal blocks. The proposed course of action has been approved by the Prime Minister.

These arrangements would provide relief to power plants with estimated capacity of more than 50,000 MW. The proposed set of arrangements is being seen as a major step forward in solving the problems of power sector in the country and is likely to boost investors` confidence in India`s power sector. It will help not only in achieving power generation capacity targeted in the 12th Plan but also assist in achieving the targeted growth of GDP. With the resolution of the immediate major problem, the attention of the Committee will now shift to other medium and long term issues affecting the power sector.