Coal India Ordered to Sign Fuel Accords With Power Utilities

Coal India Ltd., the world’s largest producer of the commodity, was ordered by the government to sign fuel-supply agreements with power utilities to help increase electricity generation capacity and cut blackouts.

A presidential directive has been issued to the state-owned company to sign the accords, coal ministry spokesman N.C. Joshi said by telephone yesterday. Coal India missed a deadline for some agreements after its board disagreed on a penalty clause linked to a minimum supply level of 80 percent.

The agreements will benefit power plants that will generate the equivalent of a quarter of the current installed capacity in Asia’s second-fastest growing major economy. Coal India has been given supply obligations after production last year was less than targeted because rains stalled operations and environmental approvals for new mines were delayed.

“As per the presidential directive, the Coal India board has been given the freedom to set the penalty clause, which means that the penalty for not meeting the supply commitment may now be insignificant,” said Bhavesh Chauhan, a senior analyst at Angel Broking Ltd. in Mumbai. “The decree also makes it obligatory on the government to expedite mining clearances.”

Coal India fell as much as 2.5 percent, the most in five weeks, to 334.60 rupees and traded at 339.85 rupees as of 10:12 a.m. in Mumbai. The stock has gained 13 percent this year, matching the increase in the benchmark Sensitive Index.

Import Option

Prime Minister Manmohan Singh asked Coal India to ensure fuel supplies in February after meeting industrialists who stalled plans to spend $36 billion on building power plants and urged him to resolve the shortage.

Coal India, based in Kolkata, hasn’t signed agreements with utilities since 2009, citing inadequate availability of the fuel, and missed a March 31 deadline for some accords. The company will import the fuel to overcome local production hurdles, according to a Feb. 15 statement on the website of the Prime Minister’s Office.

Zohra Chatterji, Coal India’s chairman, didn’t answer three calls made to her mobile phone seeking comment on the directive.

The company asked for more time to sign the agreements after the board failed to agree on the trigger level for paying fines, Chatterji said March 30.

Shareholder Claim

“The directive restricts itself to the 80 percent trigger level and leaves other commercial matters such as the penalty clause and imports for the board to decide,” Alok Perti, secretary at the coal ministry, said by telephone. “It will take about a week or so to start signing the fuel supply agreements.”

The Children’s Investment Fund Management, the second-biggest shareholder in Coal India after the government, said it’s seeking compensation for harm caused to its investment by the state’s directives to the company, including selling the fuel at a discount to international prices and delaying approvals for new mines. The fund may initiate arbitration if a settlement of its claims isn’t reached in six months, according to the letter dated March 27.

Coal India’s output in the year ended March 31 rose 1 percent to 435.8 million metric tons and missed a target of 447 million tons after rains in August and September disrupted operations, according to a statement on the government’s website. The production goal for the current fiscal year is 470 million tons.

The fuel supply agreements will benefit power plants that will generate an estimated 50,000 megawatts, according to the Feb. 15 statement. The nation had 192,792 megawatts of installed capacity as of March 29, power minister Sushil Kumar Shinde said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE