Defying the convention of patronising public sector enterprises (PSEs) at the expense of private firms, new power minister Jyotiraditya Scindia has sent a missive to his counterpart in the coal ministry, strongly recommending that public and private sector firms be treated on par in signing fuel supply agreements with Coal India (CIL).
In the modified model FSA, CIL proposes to retain the right to unilaterally terminate its agreement with private power developers in case of a dispute, but in a similar situation with PSUs, directions will be sought from the government of India. Also, as per the draft FSA, the agreement with private power companies will be suspended if they fail to submit an annual certificate from regulatory authorities that discoms having PPAs with them have received consistent supply of power. No such condition is proposed to be imposed on PSU power companies. Furthermore, while the model FSA has provided the option of arbitration for PSU power companies to resolve disputes, the same is not available for private sector companies.
Scindia wrote to coal minister Sriprakash Jaiswal: “The above distinction made by CIL between public and private sector utilities is hard to understand, especially as fuel linkage is provided to a power producer irrespective of ownership and there appears to be no reason why CIL should enter into differential FSAs with public and private sector utilities.” He added: “I request you to kindly instruct CIL to modify these clauses so that the distinction between public and private sector in the fuel supply agreement is removed and a single document is evolved for the entire sector.”
This amounts to a major policy change as Scindia’s predecessor in the power ministry Sushilkumar Shinde had favoured special dispensation for PSUs in the FSAs.
Coal India is in the process of finalising a model FSA with power companies to assure them long-term coal supplies for projects coming up by March 2015. The FSA binds both buyer and seller to coal supplies.
Scindia said the proposals in the model FSA were not acceptable to private power developers as they feel different models for a single sector would lead to distortions. Despite objection from power developers, CIL in its modified model FSA uploaded on its website in September had retained the same clauses.
The FSA has other discriminatory provisions as well: Private firms will be required to deposit 6% of the base price of coal as security before signing the FSA while PSUs will comply with security condition only after signing the agreement. In this case the commitment provided by the PSUs prior to the issue of LoA shall be converted into security deposit.
The power ministry is concerned about the terms contained in the model FSA as it has the potential to further slow down investment in the power sector and derail capacity addition. In 11th Plan, against a target of 62,000 MW of new capacity, only about 55,000 MW was added.