KOLKATA (miningweekly.com) – Mining major Coal India Limited (CIL) has agreed to provide short-term coal supplies to domestic thermal power plants until they are able to operationalise captive coal-mines allocated to them.

The short-term coal supply agreements, also known as `tapering linkage’, which would be limited for a period of three years, were initiated by the government as a number of companies had completed construction of power plants but were still a few years away from starting production from the allocated captive coal mines.

The government’s Cabinet Committee for Economic Affairs had earlier in the year decided that short-term linkages needed to be offered to 24 power projects since development of captive coal mines allocated to these projects had been delayed by controversial “Go" and “No Go” strictures imposed by the Forest and Environment Ministry demarcating permitted and not permitted areas for mining projects.

Under the tapering linkage approved by CIL, the supplies would be made under appropriate Fuel Supply Agreements (FSAs) with the provision that the feedstock requirement would be reviewed between the coal miner and power company on the first, second and third year of the stipulated agreement.

The short-term tapering linkage would throw a lifeline to the 24 power projects, and an aggregate installed generating capacity of 78 000 MW, which threatened to lie idle in the absence of any assured coal supply, would be brought into production.

However, no confirmation was yet available on the premium that CIL would be allowed to charge on coal supplies made under the short-term coal supply agreements.

Earlier, the coal miner had proposed to charge a 40% premium under short-term FSAs, but this was subsequently reduced to 20%. The Power Ministry, for its part, had demanded that the miner scrap the premium on the grounds that the notified price already factored in all the elements of cost of production and margins, and charging a premium would be ‘discriminatory’.

CIL justified the charging of a premium in terms of the incentive fit provided the miner to increase production from existing mines within the shortest possible time, in view of the length of time it took to develop new blocks and the existing shortage of supplies from current rated capacities of the mines.