Coal-starved thermal power generation utilities will give incentives to state-run Coal India by making extra payment to it for supplying the dry fuel to them more than the minimum threshold level. “In the three rounds of meetings with state utilities and Coal India last week, it was settled by the techno-economic clearance body Central Electricity Authority (CEA) that incentives would be given (by power utilities) to fuel suppliers above the threshold limit,” a power ministry source said. The threshold limit for Coal India under the long-term Fuel Supply Agreement (FSA) is 90 per cent of the trigger level.

Trigger level, is the minimum assured level of coal supply and offtake, failing which either of the parties will attract penalty.

The penalty for one party, which would be incentive for other, was not decided earlier owing to which the FSA between Coal India and power utilities could not be signed. FSA is a long-term pact between coal producers and consumers aimed at ensuring dedicated supply of fuel.

As such, Coal India Ltd has to supply 90 per cent of the trigger level to power utilities.

Under the FSA, power utilities would have to make extra payment of 10 per cent of the value of extra supplies, if Coal India supplies between 90-95 per cent of the trigger level.

Similarly, the incentive will be 20 per cent, if the supplies ranges between 95-100 per cent of the trigger level. This incentive on extra supply above 100 per cent of the trigger level would be as high as 40 per cent.

The same rule of disincentives would apply if Coal India supplies less coal to power utilities than 90 per cent of the trigger level.

Coal India has assured a supply of 313 million tonnes (MT) of coal, including 6 MT for units coming in the current financial year, to power firms for 2009-10 under the long-term supply pact.

The assured supply quantity would be divided among various power units as per the estimates given by the Central Electricity Authority (CEA) to the coal major.

The long-term contract between Coal India and power units would be for a period of 20 years where the quantity to be supplied would be reviewed every 5 years. About 1,120 companies, including steel and cement firms, have already signed the FSA with Coal India.

Source - Business Standard