There has been no resolution so far to the issue of assured fuel supply from Coal India Limited (CIL) to power producers.  According to reports, while CIL released a model supply agreement in April 2012, so far only around 13 Fuel Supply Agreements (FSAs) have been signed.  Originally around 50 power units were expected to sign FSAs with CIL.  Power producers have objected to the model FSA released by CIL, particularly its force majeure provisions and the dilution of financial penalties in case of lower than contracted supply. Background The adverse power supply situation has attracted greater attention in the past few months.  According to Central Electricity Authority's data, the gap between peak demand and peak supply of power in March 2012 was 11 per cent.  The decreasing availability of fuel has emerged as a critical component of the worsening power supply situation.  As of March 31, 2012, there were 32 critical thermal power stations that had a coal stock of less than 7 days.  The gap between demand and supply of coal in the past three years is highlighted below: Table 1: Coal demand/Supply gap (In millions of tonnes)

 

2009-10

2010-11

2011-12

Demand

604

656

696

Supply

514

523

535

Gap

90

133

161

Source: PIB News Release dated May 7, 2012 Coal accounts for around 56 per cent of total installed power generation capacity in India.  Increased capacity in thermal power has also accounted for almost 81 per cent of the additional 62,374 MW added during the 11th Plan period.  Given the importance of coal in meeting national energy needs, the inability of CIL to meet its supply targets has become a major issue.  While the production target for CIL was 486 MT for 2011-12, its actual coal production was 436 MT. Fuel Supply Agreements In March 2012, the government asked CIL to sign FSAs with power plants that have been or would be commissioned by March 31, 2015.  These power plants should also have entered into long term Power Purchase Agreements with distribution companies.  After CIL did not sign FSAs by the deadline of March 31, 2012 the government issued a Presidential Directive to CIL on April 4, 2012 directing it to sign the FSAs.  The CIL board approved a model FSA in April 2012, which has not found acceptance by power producers. According to newspaper reports, many power producers have expressed their dissatisfaction with the model FSA released by CIL.  They have argued that it differs from the 2009 version of FSAs in some major ways.  These include:

  • The penalty for supplying coal below 80 per cent of the contracted amount has been reduced from 10 per cent to 0.01 per cent.  The penalty will be applicable only after three years.
  • The new FSA has extensive force majeure provisions that absolve CIL of non-supply in case of multiple contingencies – including equipment breakdown, power cuts, obstruction in transport, riots, failure to import coal due to “global shortage or delays… or no response to enquiries (by CIL) for supply of coal.”
  • CIL would have the discretion to annually review the supply level that would trigger a financial penalty.  There was no provision for such a review in the earlier FSA.

Most power producers, including NTPC, the country’s biggest power producer, have refused to sign the new FSA.  Reports suggest that the Power Minister has asked the Prime Minister’s Office to mandate CIL to sign FSAs within a month based on the 2009 format.  CIL has received a request from NTPC to consider signing FSAs based on the same parameters as their existing plants, but with the revised trigger point of 80 per cent (down from 90 per cent earlier). Underlying this situation is CIL’s own stagnating production.  Various experts have pointed to the prohibition on private sector participation in coal mining (apart from captive projects) and the backlog in granting environment and forest clearances as having exacerbated the coal supply situation.

Mr. Vaghul, our first Chairperson, passed away on Saturday.  I write this note to express my deep gratitude to him, and to celebrate his life.  And what a life he lived!

Mr. Vaghul and I at his residence

 

 

 

 

 

 

 

Our past and present Chairpersons,
Mr. Vaghul and Mr. Ramadorai

Industry stalwarts have spoken about his contributions to the financial sector, his mentorship of people and institutions across finance, industry and non-profits.  I don’t want to repeat that (though I was a beneficiary as a young professional starting my career at ICICI Securities).  I want to note here some of the ways he helped shape PRS.

Mr Vaghul was our first chairman, from 2012 to 2018.  When he joined the board, we were in deep financial crisis.  Our FCRA application had been turned down (I still don’t know the reason), and we were trying to survive on monthly fund raise.  Mr Vaghul advised us to raise funds from domestic philanthropists.  “PRS works to make Indian democracy more effective.  We should not rely on foreigners to do this.”.  He was sure that Indian philanthropists would fund us.  “We’ll try our best.  But if it doesn’t work, we may shut down.  Are you okay with that?”  Of course, with him calling up people, we survived the crisis.

He also suggested that we should have an independent board without any representation from funders.  The output should be completely independent of funders’ interest given that we were working in the policy space.  We have stuck to this advice.

Even when he was 80, he could read faster than anyone and remember everything.  I once said something in a board meeting which had been written in the note sent earlier.  “We have all read the note.  Let us discuss the implications.”  And he could think three steps ahead of everyone else.

He had a light touch as a chairman.  When I asked for management advice, he would ask me to solve the problem on my own.  He saw his role as guiding the larger strategy, help raise funds and ensure that the organisation had a strong value system.  Indeed, he was the original Karmayogi – I have an email from him which says, “Continue with the good work.  We should neither be euphoric with appreciation or distracted by criticism.” And another, "Those who adhere to the truth need not be afraid of the consequences".

The best part about board meetings was the chat afterwards.  He would have us in splits with stories from his experience.  Some of these are in his memoirs, but we heard a few juicier ones too!

Even after he retired from our Board, he was always available to meet.  I just needed to message him whenever I was in Madras, and he would ask me to come home.  And Mrs. Vaghul was a welcoming host.  Filter coffee, great advice, juicy stories, what more could one ask for?

Goodbye Mr. Vaghul.  Your life lives on through the institutions you nurtured.  And hope that we live up to your standards.

Madhavan