<div>As the war between Coal India and NTPC escalates, the Coal Ministry has directed the state miner to continue supplying at least 50 per cent of fuel requirements to NTPC for the time being.</div><div> </div><div>"The supply (of coal by CIL to NTPC) has not been discontinued. CIL had taken a decision. But the instructions have been sent by our ministry (to CIL) that for the time being at least 50 per cent of supply should continue," Coal Minister Sriprakash Jaiswal said on Friday, 5 April 2013 on the sidelines of a conference organised by Policy Development Initiative.</div><div><br />The comment comes following media reports that Coal India (CIL) has switched off fuel supply to power major in the wake of NTPC holding back payments.</div><div> </div><div>In fact, there is a fear that Coal India could halt eastern region supplies to the country's largest power producer by the end of April, as a row over quality between the two state-run giants escalated, raising fears of mass blackouts.</div><div> </div><div>On 3 April, NTPC had refused to sign fuel supply agreements with Coal India Ltd (CIL) as it feels the state-run firm was supplying inferior quality coal.</div><div><br />The Prime Minister's Office (PMO) is pushing CIL to sign FSAs for supply of a minimum threshold of coal to power producers but NTPC feels the world's largest coal producer was supplying "rocks and boulders" just to meet its supply commitment.</div><div><br />NTPC Chairman and Managing Director Arup Roy Choudhury said it has agreed on almost all terms and conditions of the FSAs and is ready to sign the agreements provided CIL promises to give a minimum calorific value coal.</div><div><br />"They are giving us poor quality coal ... we don't want it," he said, adding that the quality of coal NTPC receives is "extremely" poor and sometimes "it is full of stones, boulders and dirt".</div><div><br />The row underscores the difficulties India faces in extracting coal quickly and efficiently enough to eliminate power shortages that hurt economic growth, and to reduce its reliance on costlier imports.</div><div> </div><div>The head of Eastern Coalfields Limited (ECL), a subsidiary of Coal India, the world's largest coal mining company, said onFriday it could halt supplies to two plants of NTPC after the latter stopped paying the full price for shipments.</div><div> </div><div>An NTPC official, who did not want to be identified because of the sensitivity of the matter, said the company had "taken a stand" against its supplier, but added that it expected Coal India to revolve the dispute soon.<br /> </div><div>R. Sinha, the chairman and managing director of ECL, said the Coal India unit had been forced to cash in fixed deposits topay employees' salaries, to make up for the fact that NTPC's non-payments amounted to Rs 1000 crore.<br /> </div><div>"We are open-minded. If NTPC resolves the issues, they can get coal as they were getting. We can't keep coal at our pithead because it will catch fire. So, we have to stop production if they don't resolve the issues," he said.</div><div><br />"If this month again I have to encash some of the fixed deposits, then I have to stop their coal supply, if they don't pay us our dues," he added.</div><div><br /><strong>Elite Company</strong><br />Bottlenecks in the power sector notwithstanding, NTPC had managed to stay in the BW Real 500 top 10 last year. (<strong>Read: <a href="http://www.businessworld.in/en/storypage/-/bw/the-elite-company-1/587175.37489/page/3">Elite Company</a></strong>) The country’s largest utility saw an increase in its capacity addition from 2,500 MW in FY11 to 2,820 MW in FY12 (34,810 MW is the total capacity). This translated into an increase in net profit from Rs 9,348.23 crore in 2010-11 to Rs 9,814.66 crore in the last fiscal. NTPC’s internal accruals are sufficient to finance its equity needs and its ‘most favoured borrower’ status enables it to raise debt at competitive rates. The company has already tied up domestic loans to the tune of Rs 57,229 crore.</div><div><br />The company’s decision to import coal directly led to 20 per cent cost savings. “Earlier, we were importing coal through MMTC and STC, which raised our cost by 8-10 per cent, due to which the state electricity boards were having trouble in paying us back. However, by importing directly we were able to source coal cheaper,” says Arup Roy Choudhury, CMD.</div><div> </div><div>But coal shortages and land acquisition issues in states such as Orissa and Bihar have impacted NTPC in terms of lowering its capacity-addition targets. The company has been experiencing problems in getting coal for its future projects and has had to carry over plans to add 11,000 MW to the 13th Plan. Besides, land issues have stalled projects to the tune of 4,520 MW.</div><div><br />The recent restructuring scheme announced to bail out distribution utilities comes as a breather for NTPC, which faced defaults from distribution companies in Delhi.</div><div> </div><div>Another positive is its entry into the distribution arena through its wholly owned subsidiary, NTPC Electric Supply Company Limited</div><div> </div><div><strong>Quality Control</strong></div><div>Commenting on the quality of coal being supplied to NTPC, the minister said: "We are ready for third party inspection (of coal) but at the loading point....But we are not ready for third party inspection at reaching point (of coal)."</div><div><br />Replying to another question, he said: "There are few issues (with regard to FSAs) which would be resolved."</div><div> </div><div> </div><div>As mentioned before, NTPC, the country's largest power producer has refused to sign fuel supply agreements (FSAs) with Coal India Ltd (CIL) as it feels the state-run firm was supplying inferior quality coal.</div><div> </div><div>The Prime Minister's Office is pushing CIL to sign FSAs for supply of a minimum threshold of coal to power producers but NTPC feels the world's largest coal producer was supplying "rocks and boulders" just to meet its supply commitment.</div><div><br />NTPC buys close to 140 million tonnes of coal to fire its thermal power plants. While most of CIL's other customers have signed on dotted lines, NTPC has not signed FSA for 4,500 MW power generation capacity.</div><div><br />NTPC said the company has resolved all the issues with CIL and the only matter coming in the way of signing the FSAs is "poor quality" coal.</div><div> </div><div>Power Secretary P Uma Shankar on the other hand had said that his ministry and Coal ministry should be able to solve the problem amicably.</div><div> </div><div>India sits on the world's fifth-largest coal reserves. But state-controlled mining operations are riddled with corruption and the theft of good quality coal by criminals colluding with Coal India officials and police, a parliamentary panel said last year.</div><div><br />A massive blackout last July, when power was cut for two consecutive days in a massive area home to 670 million people, showed how far the country still has to travel in terms of providing reliable power.</div><div><strong><br />Read Also: <a href="http://www.businessworld.in/en/storypage/-/bw/wasted-watts/450183.0/page/0">Wasted Watts</a></strong></div><div> </div><div><strong>Read Also: <a href="http://www.businessworld.in/en/storypage/-/bw/idle-assets-come-under-scanner/424252.0/page/0">Idle Assets Come Under Scanner</a></strong><a href="http://www.businessworld.in/en/storypage/-/bw/idle-assets-come-under-scanner/424252.0/page/0"> </a></div><div><br />NTPC gets the bulk of its coal through long-term fuel supply agreements (FSAs) with Coal India. The utility has delayed signing a new supply pact for 4,500 MW, however, citing quality issues, its chairman said in February.</div><div> </div><div>ECL supplies coal from its Rajmahal mine in Jharkhand state to NTPC's Kahalgaon and Farakka plants, and plans to expand the mine's capacity to 17 million tonnes from 14 million tonnes could be scuppered if NTPC does not pay its dues, Sinha said.</div><div><br />"We have taken a stand," an NTPC official said by telephone, acknowledging the company had not paid in full for the coal supplies but declining to give specifics.</div><div> </div><div>"We've always had issues with supplies there," the official said about coal shipments in India's east. ECL is headquartered in the eastern state of West Bengal, where it has mines, as well as in neighbouring Jharkhand.</div><div><br />"Coal India is also an equally responsible organisation. I think they will very soon come up with a good plan," the official said, without saying how a compromise could be reached.</div><div><br />Both coal supplier and power producer now jointly monitor the quality of coal extracted from mines, opening up the possibility of wrangles over its true worth. The government plans to change that by mandating a third party to judge value.</div><div><br />Dipesh Dipu, a partner at Jenissi Management Consultants, played down the chances of the dispute escalating to the point where Coal India would pull the plug on supplies and cause mass power shortages.</div><div> </div><div>"I don't suspect it will lead to that kind of extreme measures, because at the end of the day, both public sector entity heads are responsible to their political bosses."</div>
