Bloomberg News

Coal India Ordered to Sign Supply Accords With Power Utilities

April 03, 2012

Coal India Ltd. (COAL), the world’s largest producer of the commodity, was ordered by the government to sign fuel-supply agreements with power utilities to help increase electricity generation capacity and cut blackouts.

A presidential directive has been issued to the state-owned company to sign the accords, coal ministry spokesman N.C. Joshi said by telephone yesterday. Coal India missed a deadline for some agreements after its board disagreed on a penalty clause linked to a minimum supply level of 80 percent.

The agreements will benefit power plants that will generate the equivalent of a quarter of the current installed capacity in Asia’s second-fastest growing major economy. Prime Minister Manmohan Singh asked Coal India to ensure fuel supplies in February after meeting industrialists who stalled plans to spend $36 billion on building power plants and urged him to resolve the shortage.

Coal India hasn’t signed agreements with utilities since 2009, citing inadequate availability of the fuel, and missed a March 31 deadline for some accords. The company will import the fuel to overcome local production hurdles and pay a penalty for failing to deliver at least 80 percent of the contracted quantity, according to a Feb. 15 statement on the website of the Prime Minister’s Office.

Coal India gained 0.6 percent to 343.30 rupees at close in Mumbai yesterday, before the directive was issued. The stock has gained 14 percent this year, matching the increase in the benchmark Sensitive Index.

Zohra Chatterji, Coal India’s chairman, didn’t answer three calls made to her mobile phone seeking comment on the directive.

Board Disagreed

The company asked for more time to sign the agreements after the board failed to agree on the trigger level for paying fines, Chatterji said March 30.

“The directive restricts itself to the 80 percent trigger level and leaves other commercial matters such as the penalty clause and imports for the board to decide,” Alok Perti, secretary at the coal ministry, said by telephone. “It will take about a week or so to start signing the fuel supply agreements.”

The Children’s Investment Fund Management, the second- biggest shareholder in Coal India after the government, said it’s seeking compensation for harm caused to its investment by the state’s directives to the company, including selling the fuel at a discount to international prices and delaying approvals for new mines. The fund may initiate arbitration if a settlement of its claims isn’t reached in six months, according to the letter dated March 27.

Output Target

Coal India’s output in the year ended March 31 rose 1 percent to 435.8 million metric tons and missed a target of 447 million tons after rains in August and September disrupted operations, according to a statement on the government’s website. The production goal for the current fiscal year is 470 million tons.

The fuel supply agreements will benefit power plants that will generate an estimated 50,000 megawatts, according to the Feb. 15 statement. The nation had 192,792 megawatts of installed capacity as of March 29, power minister Sushil Kumar Shinde said.

To contact the reporter on this story: Rajesh Kumar Singh in New Delhi at rsingh133@bloomberg.net

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net


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