Coal India Ltd.

Coal India’s board again refused to abide by Prime Minister Office’s (PMO) instructions of committing fuel supply to power stations for 20 years by March 31, by tossing the ball in the coal ministry’s court saying it needs advice.

Prime Minister's Office (PMO) last month directed CIL to ink FSAs with 80 per cent supply clause before March-end for power plants that have been commissioned on or before December 31, 2011. Amid power plants facing a supply crunch, the PMO stated that FSAs would be signed for full quantity of coal mentioned in the Letters of Assurance (LoAs) for a period of 20 years. The core issue, which remained unresolved in the meeting again was a clause in fuel supply agreements (FSAs) that imposed financial penalties on the state-run firm if it fails to deliver 80% of the contracted quantity of coal.

Some independent directors even resented on FSA stressing the protection of minority shareholders’ interests. These included aligning prices to international prices and reducing supplies to the power sector so that profits are increased. The fuel supply agreement on the other hand will make sure CIL meets the increased coal requirement of power companies at a predetermined price. Further, the clause of importing the coal for power industry’s requirement was also seen as disconcerting as this could directly impact CIL’s profitability.

The outcome cheered UK-based hedge fund TCI, which has served a notice to the government claiming that the Indian government was pressurizing Coal India to sub-serve its own interests to help private power producers, and that this was against the interest of minority shareholders like the fund, which bought about 1% equity in the state monopoly after its IPO.