KOLKATA (miningweekly.com) – The fate of 15 000 MW of thermal power generation capacity, scheduled for completion before the end of the year, is facing an uncertain future as major Coal India Limited (CIL) has been directed not to sign any new fuel supply agreements (FSAs).

An inter-Ministerial committee, which met earlier this month to deliberate on FSAs, has directed CIL to refrain from concluding any coal supply agreement with bulk consumers until the government finalises the terms, conditions and rules for the auction of FSAs.

As reported by Mining Weekly Online in January, bulk consumers in the coal, steel and cement sectors would have to enter into competitive bidding for assured long-term supplies of dry fuel to ensure a `fair price’ for coal supplied by CIL.

The Coal Ministry was working on finalising the rules for auction of long-term coal supplies to bulk users and the financial advisory arm of the State Bank of India (SBI), SBI Capital Markets, had been appointed to advise on the proposed auction, a Ministry official said.

He said that the government was rushing to get the coal linkage auction rolling but it was not yet clear whether the 15 000 MW thermal power generating capacities, in various stages of completion and scheduled to go into operation in the course of 2015/16, would be able to clinch coal supplies.

The possibility of time-overruns by many of these new power plants for want of coal was not being ruled out by the government, although officials said that the projects could choose the option of getting plants operational with imported coal till such time as coal supply auctions were completed.

An official of NTPC Limited, the country’s largest power producer, said that it would be difficult for the government to rush through the coal supply auction in view of the contentious issues involved.

He pointed out that an auction process would need to address and align the apparent conflict between thermal power plants securing coal supplies through competitive bids in a free pricing regime and final electricity tariffs for the consumer remaining regulated.

At present, CIL followed a dual pricing regime. The miner supplied coal at a cheaper price to sectors where the end-product, such as electricity, had a regulated price while charging a higher price where end-products were freely priced; like steel and cement.

Coal supplies to thermal power plant were at a ‘notified price’ while supplies to sectors like steel and cement was charged 35% more than the notified price. Under this regime, electricity consumers were protected from the impact of high coal prices.

Terming the proposed coal supply auction as ‘unworkable’, the NTPC official said that it would be interesting to watch how the government intended to offer tariff protection to electricity consumers from the impact of coal prices when thermal power producers would obviously have to offer hefty amounts in competitive bidding to secure FSAs.

Despite introducing uncertainty to the matter of new thermal power capacity, the directive to CIL to halt new FSAs had been a blessing in disguise for the miner, considering it has missed its production target for 2014/15 and did not have any incremental production to offer.

Between April 2014 and February 2015, CIL had achieved a production of 437-million tonnes and was expected to close the fiscal on March 31 with total production nearing 497-million tonnes, against a government set target of 507-million tonnes for the year.

Despite this, according to indications available from the Coal Ministry, the government was expected to set a production target of 550-million tonnes for CIL for 2015/16.