Major Indian power producers said
Tuesday they may seek the federal government's intervention to levy
higher penalties on Coal India Ltd. if the state-run miner
fails to meet its supply obligations.
Coal India, the world's
largest producer, late Monday agreed to sign fuel-supply agreements with
some new power projects within a week but diluted its penalty
obligations. The move came after the offices of Prime Minister Manmohan
Singh and President Pratibha Patil issued directives to the company to
ensure adequate supplies to utilities, though the miner was given a free
hand in deciding on penalties.
The government is concerned that
any shortfall in supplies by Coal India will have wider ramifications
for the economy as the company meets more than 80% of the nation's
requirement and because more than half of India's 200 gigawatt power
generation capacity runs on coal.
Some power producers are also
increasing coal imports as output at Coal India has remained stagnant
for the past two years due to delays in environment clearances, heavy
rainfall and frequent labor strikes.
Coal India said Monday it
will sign supply pacts with power projects that became operational by
the end of December and have a total generation capacity of about 28
gigawatt. The pacts stipulate that, if Coal India fails to supply at
least 80% of the annual contracted coal, it will pay 0.01% of the value
of the shortfall as penalty. That's down sharply from the 40% penalty it
is mandated to pay under existing contracts.
Shares of Coal India Tuesday gained 3.2% to INR350.00 in a Mumbai market 1.2% higher as investors cheered news of lower penalty. But power producers are miffed. "The
company has failed to understand the spirit and intent of the
[government] directive," said Ashok Khurana, director general of the
Association of Power Producers, which represents private-sector
utilities including Tata Power Co. and Reliance Power Ltd.
Jindal
Power Ltd. Managing Director R.S. Sharma and GVK Power &
Infrastructure Ltd. (532708.BY) Chief Financial Officer Isaac George
said they will ask the government to implement tougher penalties on Coal
India. George added that such pacts were "unfair."
Jindal Power, a
wholly owned unit of Jindal Steel & Power Ltd., has a
generation capacity of about three gigawatt, which it aims to raise to
five gigawatt by 2015. GVK Power is building 2.8 GW electricity
generation capacity. Some utilities are, however, hoping that Coal India will boost supplies.
"We
should think positive and expect Coal India to meet its fuel supply
agreement targets," NTPC Ltd. Chairman Arup Roy Choudhury
said. State-run NTPC, India's largest power producer, plans to
almost double its electricity generation capacity to 66 GW by March
2017.
Gagan Banga, a spokesman for the Indiabulls group, which is
building more than five gigawatt of power projects, agreed with
Choudhury.
Banga said that the supply pacts can't just be "a
hogwash" as Coal India is acting on a presidential directive and that he
thinks the company will work toward meeting the supply commitment.
The
government directive to Coal India has also raised concern among some
minority shareholders. U.K.-based The Children's Investment Fund
Management has opposed the government clauses on assured supplies to
customers saying these were against the interest of Coal India given the
slow growth in its output. It didn't immediately reply to an email from
Dow Jones Newswires seeking comment for this article.
Kameswara
Rao, executive director and leader of the energy, utilities, and mining
vertical at PricewaterhouseCoopers India, said Coal India has to balance
the interest of the Indian government, which is its majority
shareholder, and also its minority stakeholders. "As a listed
company Coal India needs to consider broader investor interest," Rao
said. "But with the government being the single-largest shareholder, it
needs to balance both issues."
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