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NTPC and CIL to sign fuel-supply agreements; other cos too may ink pacts

KOLKATA: Leading power generator NTPCBSE 1.74 % has resolved its public spat withCoal IndiaBSE 0.29 % over quality and payment terms, and agreed to sign fuel-supply agreements with the state monopoly a year after the deal was first offered. 

NTPC's board has approved the fuel pact, setting the stage for other firms to sign similar agreements. Many producers were waiting for NTPC to resolve the issues with Coal India, because the state utility, being a large customer, has much stronger negotiating power than others. 

NTPC Chairman Arup Roy Choudhury said the differences had been resolved. "Our board has passed the 
FSA (fuel-supply agreement) after it was mutually discussed and issues ironed out by CILBSE 0.29 % and NTPC officials over the past few months," he told ET. 

A senior NTPC official said various contentious issues between the two firms were discussed and resolved last week at a meeting of senior executives. 


Coal India's board is now scheduled to consider the fuel pact on Wednesday, after which the final agreement will be signed, company executives said. 

NTPC had earlier publicly challenged Coal India on various issues, particularly the quality of coal supplied, and said it would make payments only on the basis of quality of the fuel supplied. The board's approval is significant because NTPC accounts for more than 35% of the quantity that CIL supplies under the new FSAs. State-owned power generator 
Damodar Valley Corporation, which was also opposing the agreement, started signing the FSAs last month. 

NTPC had two major issues with respect to the fuel-supply agreement that was prepared for units which came up after March 2009, and had resisted signing the agreements. One was with respect to maintaining two sets of FSAs for thermal power stations which have units built before 2009 and those that came up subsequently. The second was with respect to coal quality. 

According to the decisions taken by the NTPC board on Tuesday, Coal India will be eligible for financial incentives only after the company has supplied the full quota of coal under both sets of FSAs. According to the old format for FSA, CIL is eligible for incentives if it supplies more than 90% of the annual contracted quantity. Under the new format, prepared in 2012, CIL will be eligible for incentives if it supplies more than 80% of the contracted quantity. 

"Thus, CIL will be eligible for incentive only after it has supplied 90% of coal under the old format and then met 80% of the supplies under the new format in thermal power stations where both new and old units are operational," said a senior NTPC executive. 

The NTPC board has also agreed to CIL's decision to put in place systems for third-party sampling and analysis at the loading end before September 30, 2013. CIL will also put back in operation auto mechanical samplers wherever they are installed but are non-functional. 

The third major decision with respect to coal quality was that if CIL supplies stone and mud with coal or inferior-grade coal, the quality of the fuel will be adjusted accordingly to revise the coal supply volumes. Only after adjustment of quality will CIL be eligible for incentive, if any.