Power companies have reasons to cheer as cracking a whip, the government on Tuesday issued a Presidential directive to Coal India to sign fuel supply agreements (FSAs) with the power producers assuring them of at least 80 per cent of the committed coal delivery. This comes in face of stiff opposition from independent directors who at a board meeting held on March 22 had resented the clause in the FSA for ensuring at least 80 per cent supply of the commitments to power plants. Last week British hedge fund, The Children's Investment Fund Management, served a notice to the Indian government for alleged violations of international treaties related to its investments in Coal India.The Presidential directive has been given to the PSU, as it did not meet the deadline of March 31, set by the Prime Minister's Office for Coal India Ltd (CIL) to enter into agreements with power producers which were facing fuel crunch."Government has this power reserved so that whenever there is an emergency then that power can be used. As we saw an emergency.. there was a commitment by Coal India.Therefore, the government decided to sign the FSAs with 80 per cent commitment. That is why the directive was issued," Coal Minister Sriprakash Jaiswal told reporters.He said it would not take more than two-three days for the CIL to sign the FSAs with the power producers.However, the crucial clause of penalty on CIL in the case of its failure to meet 80 per cent fuel supply commitment, has been left to the PSU board, the minister said. "It is for Coal India to decide (penalty).They have full freedom (on it)," he said.Under clause 37 of the memorandum of association of Coal India, the Government of India has the right to invoke 'presidential directive' to overrule the board's decision if no consensus is reached on issues related to national interest.Coal India's independent directors were against the signing of fuel supply agreements at the trigger level of 80 per cent and the penalty clause involved. Last week, British hedge fund The Children's Investment Fund Management served a notice to the Indian government for alleged violations of international treaties related to its investments in Coal India.It is perhaps only the second time that the government has resorted to this option to force the Maharatna PSU agree to its directive.The government had issued Presidential directive to state-owned gas utility GAIL India Ltd in 2005 insisting on a particular technology for laying the Rs 1,800 crore Dahej-Uran pipeline.While the power producers welcomed the decision, analysts feel the Rs 50,000 crore CIL may stand to lose heavily in case it falters on its commitment to supply fuel to the energy firms. CIL share closed Rs 342.75, gaining 0.65 per cent.In February, after meeting with the power sector honchos, the Prime Minister's Office (PMO) had directed CIL to ink FSAs with 80 per cent supply commitment before March-end for power plants which have been commissioned on or before December 31, 2011.However, the PMO direction did not find favour with independent directors of the CIL, which is a listed and traded PSU. The minority shareholders also questioned the move. Earlier, independent directors in the board meeting held on March 22 had resented a clause in the FSA for ensuring at least 80 per cent supply of the commitments to power plants.The board had also met earlier twice over the past one week, but no consensus could be reached as there were disagreements over some of the clauses in the FSA.The independent directors, according to sources, had opposed to the clause for ensuring at least 80 per cent supply of the commitments to the power plants stating that the PSU as facing problems in enhancing coal production and was not in a position to meet the commitment.Amid power plants facing a supply crunch, the PMO had said that FSAs would be signed for full quantity of coal mentioned in the Letters of Assurance (LoAs) for a period of 20 years.It had elaborated that if the supply remains below 80 per cent, then CIL would be penalised and would be provided incentives if it was found above 90 per cent.In case, CIL is unable to meet the obligations, the company would have to arrange for fuel through imports or other arrangements, it had said. Coal India May Have To Pay 10% Penalty to Power CosUnder the FSA, Coal India may have to pay power companies between 10 and 40 per cent of the average cost of 20 per cent and more shortfall in supplies under new guaranteed fuel pacts the government is forcing it to sign, ministry sources said. However, the crucial clause of penalty on CIL has been left to the boardThe world's biggest coal miner, however, stands to gain equal levels of rewards even if it meets only 90 per cent of its commitments under these pacts with power plants that are due to be commissioned by 2015 and generate 50,000 megawatts of power.Coal India's production has stagnated due to regulatory and infrastructure hurdles. In 2011-12, it missed even a scaled down output target, producing about 436 million tonnes. It now aims to produce 470 million tonnes in 2012-13.The under-performance by the coal monopoly has worried Prime Minister Manmohan Singh, already struggling with a slowing economy, and he is now pushing the company to boost output which could help many power plants that are running below capacity."What is being proposed is if the company fails to provide less than 80 per cent then it will be penalised in a graded manner," said a senior source in the coal ministry on condition of anonymity as the proposals are still being finalised."Between 75 and 80 per cent supply (of the contracted amount), it will be fined 10 per cent of the average cost of the shortfall. For 70-75 per cent of supply the penalty will be 20 per cent and below 70 per cent supply will attract a 40 percent penalty."Average domestic coal prices are Rs 1,600-1,700 per tonne and are anywhere between 40-70 per cent below international spot prices as they are capped by the government which is keen to provide cheap electricity.Indonesia spot coal prices -- the biggest source for India's imports -- are currently around $65 per tonne.Singh's decision to force Coal India to sign guaranteed fuel supply pacts followed intensive lobbying by top executives from India's power companies, who had sought his help to boost supplies of coal. Singh's office has said Coal India will have to ensure supplies, including by imports if needed.CAG Estimates IllogicalCoal Minister Sriprakash Jaiswal on Tuesday, meanwhile, described CAG draft report on allocation of coal blocks without auction as "illogical", asking by that yardstick even water used in the hydro projects should be charged."This is no logic. If this is accepted , then there are so many hydro projects in the country. Tell me whether usage of water was charged," Jaiswal asked.He said the argument in the CAG draft report was "baseless", especially because when the blocks were given to the private and public sector companies for their captive usage, there was not much demand for coal.First, there was no policy of auctions in place from 1993 onward when the coal blocks were given for the first time to companies other than Coal India Ltd (CIL). Secondly, the auction system had not been in use for several other sectors."...there are so many steel plants and so much iron ore is extracted, whether iron ore is auctioned," he said in an interview with PTI.Asked if he found no merit in the auctioning the natural resources like coal, then why is his ministry going in for inviting bids for the blocks, Jaiswal said dynamics have changed over the past few years as coal commands premium now."Today coal demand has risen so much. That time (when the blocks were given (without auction) there was not much demand... naturally, there was not much value."There were not many investors. Even if we had gone in for the bidding, we doubt whether any investor would have come. Everything has a time. With so value (now), bidders will come," he said.The draft report of the Comptroller and Auditor General(CAG) has created a furore by stating the companies, including top business houses and some public sector firms, had made gains worth Rs 10.67 lakh crore by bagging 155 blocks without any bidding between 2004 and 2009. UK's TCI Serves Notice To Govt On Coal IndiaLast week British hedge fund The Children's Investment Fund Management served a notice to the Indian government Wednesday for alleged violations of international treaties related to its investments in Coal India.The latest salvo comes close on the heels of the UK hedge fund threatening to initiate legal action against the board members of state-run Coal India Ltd (CIL) for failing to protect the interest of minority shareholders."The Republic of India's recent conduct with respect to CIL has seriously impaired the business activities and operations of CIL and has contravened each of the treaties," The Children's Investment Fund (TCI) said in a letter to the Finance Ministry on March 27.According to the letter, the Indian government's actions have breached the country's treaties with Cyprus as well as the UK and Northern Ireland, where the TCI's funds are domiciled.TCI's investments in Coal India are through TCI Cyprus Holding Ltd and Talos Capital Ltd, which is registered in Ireland.The hedge fund has said the letter was a "written notification of a dispute arising" out of breach of the two treaties.Among the alleged violations cited in the letter are the government's direction that CIL price and sell coal under Fuel Supply Agreements (FSAs) at a substantial discount to international market rates.(With Agencies)
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British oil explorer Cairn Energy said it would buy Agora Oil & Gas for $450 million to increase its drilling activity in Britain and Norway in 2012 and expand its lower risk, near-term exploration assets.The deal marks the first step in Cairn's strategy, outlined last month, aimed at reducing its exposure to exploration in Greenland where most of its assets are located.The company, which had earlier indicated that it was interested in the Mediterranean region, did not rule out further acquisitions this year."There is the potential, certainly, for more transactions. We have the capacity to do that," Chief Executive Simon Thomson said on a call with reporters."I'd like to think, without giving any specific timing, that we will be active this year in terms of other opportunities," he added.However, Thomson said that the company need not resort only to M&As to grow its portfolio with a number of other options like new licence applications, farm-in transactions, asset deals also a possibility.Cairn's $1.2 billion drilling campaign in Greenland has dominated its activities over the past two years, but the company has failed to find oil and is seeking new projects that can offset its exposure to the country.The company has enough firepower to fund more transactions with $1.2 billion in cash available, even after returning $3.5 billion to shareholders earlier this year.The company also has the option to raise additional funds by selling its remaining 22 per cent stake in its Indian business, Cairn India, whose value the company estimated at $2.9 billion when it reported results last month."Cairn clearly flagged with its 2011 results that it wanted to rebalance its portfolio and introduce near-term drilling activity and, perhaps, production," Liberum Capital analyst Andrew Whittock said in a note to clients."The acquisition will rebalance Cairn's portfolio by introducing near-term exploration and development opportunities but the price looks full and the deal dilutes Cairn's attraction as a high risk explorer," Whittock said.Cairn said it would pay a total consideration of $450 million for the Stavanger, Norway-based Agora, when including the net working capital of $75 million, through a combination of about 43 percent cash and 57 percent Cairn shares.It put the enterprise value of the proposed acquisition at $375 million, including $58 million of potential tax shelter in Britain and Norway.Agora, currently owned by RIT Capital Partners PLC together with Lord Rothschild's family interests and company management and staff, had gross assets of about $120.1 million at December 31.Cairn's shares, which lost their blue-chip status and were demoted to the FTSE 250 index, were trading up about 4 per cent at 333.6 pence at 0928 GMT on Tuesday on the London Stock Exchange.(Reuters)
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State-backed Coal India may have to pay power companies between 10 and 40 per cent of the average cost of 20 per cent and more shortfall in supplies under new guaranteed fuel pacts the government is forcing it to sign, ministry sources said.The world's biggest coal miner, however, stands to gain equal levels of rewards even if it meets only 90 per cent of its commitments under these pacts with power plants that are due to be commissioned by 2015 and generate 50,000 megawatts of power.Coal India's production has stagnated due to regulatory and infrastructure hurdles. In 2011-12, it missed even a scaled down output target, producing about 436 million tonnes. It now aims to produce 470 million tonnes in 2012-13.The under-performance by the coal monopoly has worried Prime Minister Manmohan Singh, already struggling with a slowing economy, and he is now pushing the company to boost output which could help many power plants that are running below capacity."What is being proposed is if the company fails to provide less than 80 per cent then it will be penalised in a graded manner," said a senior source in the coal ministry on condition of anonymity as the proposals are still being finalised."Between 75 and 80 per cent supply (of the contracted amount), it will be fined 10 per cent of the average cost of the shortfall. For 70-75 per cent of supply the penalty will be 20 per cent and below 70 per cent supply will attract a 40 percent penalty."Average domestic coal prices are Rs 1,600-1,700 per tonne and are anywhere between 40-70 per cent below international spot prices as they are capped by the government which is keen to provide cheap electricity.Indonesia spot coal prices -- the biggest source for India's imports -- are currently around $65 per tonne.Singh's decision to force Coal India to sign guaranteed fuel supply pacts followed intensive lobbying by top executives from India's power companies, who had sought his help to boost supplies of coal. Singh's office has said Coal India will have to ensure supplies, including by imports if needed.Coal India has also said it needs more clarity on who will foot the bill for any imports before it commits to major purchases needed to meet supply obligations to power producers.India's coal demand is set to jump to 981 million tonnes by 2017, official data shows, but output in this period may only be at 715 million tonnes, leaving imports to bridge the gap.Coal accounts for about half of India's power generation.Last month, a government auditor's draft report said India lost up to $210 billion in revenue by selling coal deposits too cheaply, in another headache for Singh's government which has spent almost all of its second term fighting graft allegations.(Reuters)
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Shares of oil explorer Cairn India rose 3.8 per cent to 353.90 rupees, tracking gains in crude oil prices and after UBS upgraded the stock to "buy" from "neutral" and raised its target price to 400 rupees from 375 rupees.UBS said Cairn was a good proxy to play the rising crude prices and the weakening rupee, while saying it expected a "healthy" dividend from the unit of U.K.-based explorer Cairn Energy sometime in the next three months.Cairn was also "likely" to announce "positive" updates in the next six months about reserves at the Rajasthan block, as well as possibly from its Sri Lanka reserves, the investment bank added.Despite a recently proposed hike in oil production taxes from the Indian government, UBS upgraded Cairn's fiscal 2013-14 earnings-per-share by 3-4 per cent.Cairn shares dropped 9.5 per cent in March, dragged down by profit worries after the announced cess hike , under-performing a 1.7 per cent fall last month in the broader Nifty index.(Reuters)
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India is looking at buying more oil and gas from Qatar, Oil Minister S. Jaipal Reddy said on Monday, after a meeting with his Qatari counterpart.Indian refiners have been cutting oil imports from sanctions-hit Iran and are diversifying purchases away from the country's second-biggest supplier of crude after Saudi Arabia.Reddy said in 2010-2011, India imported 5.6 million tonnes of oil from Qatar. India also annually buys 7.5 million tonnes of liquefied natural gas (LNG) from Qatar under long term deals."In the years ahead with our energy requirement growing we look for larger quantities of LNG, oil and LPG from Qatar," Reddy said.Qatar is the world's largest LNG producer with a capacity of 77 million tonnes a year.(Reuters)
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The deeper you go into the reasons behind India's ongoing coal crisis, the more it appears to be a tale of a disaster-in-waiting. Innumerable questions beg an answer. Some have obvious answers: bureaucracy, corruption and connivance. For others, the answers are buried under piles of moth-eaten files that have been pushed from one department to another just to avoid taking sane decisions.Despite having 287 billion tonnes of reserves, India is in the midst of an acute coal shortage. Consider this: India produced 532 million tonnes (MT) of coal in 2010-11 against a demand of 650 MT. The 20 per cent shortfall was met by imports, but not before it had brought cement plants close to shutting down and forced power plants to operate sub-optimally."Domestic production was targeted at 680 MT in the Eleventh Plan ending 2012, but is expected to be only 554 MT," says the Planning Commission's draft report for the 12th Five-Year Plan. A Central Electricity Authority (CEA) assessment says that as of 29 February, 34 power plants had less than 7 days' stock and 25 less than 4 days' stock. With plans to add 100 GW of power generation, India is staring at a shortfall of 200 MT by 2017, says the Planning Commission. Now, over to the questions:Why is There No Price Discovery For India's Coal?India has traditionally followed an opaque process of allocating coal blocks to companies at pre-determined prices, rather than through bidding/auction. Curiously, as far back as 2004, the coal ministry had taken a decision to only give out blocks through auction. But it's still to be implemented. Despite the law ministry's unambiguous opinion that the decision to auction the blocks could be taken by the executive, the coal ministry repeatedly asked the power ministry, states, and the prime minister whether there were provisions in the law to auction coal blocks."Auction is not always the best route...raw materials may be cornered by big multinational mining companies," says an email response from Jindal Steel and Power which has been allotted seven blocks. CAG alleges JSPL benefited to the tune of Rs 23,138 crore apart from jointly owned blocks.Meanwhile, India's coal-mining duopoly, Coal India (CIL) and Singareni Coalfields, are able to meet just 74 per cent of India's coal requirement (captive mines and imports meet the rest). In three years, CIL has not signed any fuel supply agreement (FSA), holding up the setting up of new thermal power plants, says a CAG report. It's worse outside of CIL. There are 208 captive coal blocks allotted to private players in power, steel and cement, holding 49 billion tonnes of reserves with potential of 657 mtpa. But the estimated annual production will only be 37 mtpa, says the Planning Commission. One way in which the Planning Commission proposed price discovery was e-auctions —starting with 10 per cent of production, going up to 30 per cent in the seventh year. But e-auctions did not take off because CIL fell short of supply by 2-8 per cent (e-auction prices were 58 to 81 per cent above the notified prices of coal).This argument is at the core of the Comptroller and Auditor General (CAG) of India's scathing draft report accrued to the allottees gains worth an estimated Rs 10.67 lakh crore as on 31 March 2011, indicating revenue loss.The draft report picked on Reliance Power's Sasan Ultra Mega Power Project (UMPP) to highlight the irregularities in block allocation, saying it got "undue benefit" of Rs 4,875 crore over a 25-year period. The report also says its Tilaiya UMPP got undue benefit of Rs 10,974 crore over the 25-year power purchase agreement. Reliance Power did not repond to an email questionnaire.Why are Blocks Being Allocated Without Getting Clearances? Click here to view enlarged image That allocated coal blocks could get embroiled in a struggle to get clearances seems to have slipped through the cracks during policy-making. Around the time the coal auction policy was being formulated in the Ministry of Coal, the power ministry was finalising the UMPP policy. It decided to hand over projects only after acquiring land and environment clearances. The coal ministry didn't adopt that method."Coal production could have increased as rapidly as demand if there were not so many problems in front of us: land acquisition... Naxalism...forest and environment clearance," said coal minister Sriprakash Jaiswal in an earlier intierview with BW. "It would be smarter to cut down the forests for mining with the condition that four times as much afforestation must be carried out," he says. Most delays occur in securing environmental clearances, approvals for land and mining leases from the state governments and in land acquisition. Of the 68 non-producing blocks as of June, 2011, 62 await land acquisition, 58 mining leases, 53 forest clearances and 26 environment management plan.But it's not as if there aren't enough ideas to resolve problems. In December 2005, an expert committee on Road Map for Coal Sector Reforms suggested setting up a high powered committee to consider the application for environment clearances within 4-6 months. However, the suggestion continues to be in disuse.India's coal reserves are calculated via the Indian Standard Procedure code of 1956. It's based on geological classification and does not consider mineability. India's reported coal reserves also include an estimated 10 billion tonnes of coal extracted over the last 200 years. In 2001, the government scrapped the ISP method and adopted to measure coal reserves through the United Nations Framework Classification for Minerals. The coal ministry's report — work on which began in April 2007 — was expected in March 2012, but is yet to be submitted.break-page-breakWhy Are Sectors Such As Cement And Steel Being Allotted Coal Blocks? Since tariffs are tightly regulated in power, there is, perhaps, a case for giving out coal blocks on concession so that the government can prevent a tariff shock to the consumers. However, analysts argue that there is no such ground for steel and cement sectors, since both sell at market rates.A major problem is of ‘squatting' on blocks after allocation. Even the CAG draft report has blasted the tardy rollout of captive coal blocks. "We find it difficult to agree with the ministry because scheduled production plans of 86 blocks were formulated after considering the time required for pre-production clearances and activities. A shortfall of 52.55 per cent in production targets reflects that the objective of enhancing production through allocation of captive coal blocks largely remained unachieved." But look at the irony. Essar Power and Hindalco which have joint rights to the Mahan block in MP have power plants of 1320 MW and 750 MW ready, but have no coal because the mines are awaiting environmental clearance.Why Is CIL Sitting On Cash Reserves When Mines Struggle With Obsolete Machinery?Finally, a large part of the blame for India's coal woes lands at the doorstep of CIL. Not all of which is without reason. It's ironic that while CIL had cash reserves of Rs 43,776 crore as on 31 March 2011, it outsourced 48 per cent of production instead of deploying modern machinery to enhance production. The current technology used to mine coal can only extract up to 300 metres. However, the reserves are calculated for up to 1,200 metres. A majority of the 273 underground mines are loss-making, largely due to poor mechanisation. For instance, of the 3.75 lakh people deployed in mines, 2.01 lakh (53.6 per cent) are deployed in producing just 40 mtpa (about 9.25 per cent of production) from underground mines. "It will be smarter to cut down trees for mining with the condition that four times as many be planted," Sriprakash Jaiswal, Coal Minister Underground mines require 5-7 years to reach production stage, which increases the cost of production. There was a Rs 3,256-crore cost over-run on open cast and underground mining projects worth Rs 8,926 crore. "We are fortunate to have resources mostly within 300 metres of the surface. If you go by the cost of mining, wherever feasible, open cast mining is the cheapest way," said Coal India former CMD N.C. Jha. "The country needs coal at a cheaper price so that power is available at a much lower price." "In India, most mines are open-cast and underground mining is not done beyond 300 metres which is a major reason for lower production," notes J. P. Chalasani, CEO, Reliance Power.Due to poor mechanisation, CIL is short of Planning Commission's actual and revised targets by 73.50 MT and 39.50 MT, respectively.Why is Coal India's Production Not Priced at Market Rates? In December last year, the Ministry of Coal announced that the pricing of coal would move to the internationally accepted system of pricing by Gross Calorific Value (GCV) from January 1, 2012. India previously used the system of Useful Heat Value based on the ash content of coal (15-35 per cent in Indian coal). The GCV mechanism measures heat released from carbon and hydrogen. The new pricing mechanism would increase the cost of inputs for power plants by an average 50 per cent (depending on the grade of coal used). But it would also reduce the range in prices of different grades of coal. The GCV system being tried since 1990s has met with opposition, especially from power producers. CIL is currently reviewing it on issues such as revenue-neutrality, applying it to existing FSAs.Despite the litany of problems facing the industry, some remain hopeful. "The efforts...to solve the coal crisis have to a good extent helped and will bring back investor confidence," says Sanjay Sethi, executive director, Kotak Investment Banking. Optimists such as Sethi are banking on a spate of positive news coming their way. In 2010, Parliament passed an amendment to the Minerals and Metals Regulation and Development (MMDR) Act to incorporate auction as the way forward for awarding coal blocks. And though that's yet to be implemented, the coal minister's promise to set up a regulator for the sector to decide on bids/auctions and pricing of coal has come as a breath of fresh air.None of these, however, will be able to cater to the inherent problems of CIL. As of now, it is still to abide by the Prime Minister's directive to sign fuel supply agreements with power plants, saying it will face penalties if it fails to meet at least 80 per cent of its commitments.yashodhara(dot)dasgupta(at)abp(dot)in(This story was published in Businessworld Issue Dated 02-04-2012)
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The CAG on Friday pulled up Gujarat government company, GSPC for extending undue benefits to Adani Energy and Essar Steel and said the company's poor management of oil and gas exploration business led to over Rs 5,000 crore loss.The report of the Comptroller and Auditor General (CAG), which was tabled in the state assembly on Friday, said GSPC bought natural gas from the open market (spot market) and sold it to the Adanis at a price lower than the purchase price. CAG estimated that Adani Energy received undue benefit of Rs 70.54 crore in the process.The firm passed on undue benefit of Rs 12.02 crore to Essar Steel Ltd by way of waiver of capacity charges contrary to the provision of gas transmission agreement.CAG was severely critical of GSPC's operations in the Krishna Godavari basin gas block where improper assessment of technical and financial issues led to drilling cost shooting up to $1.302 billion as against estimate of $102.23 million."The bidding process adopted by the company for acquisition of hydrocarbon block was found to be defective as in case of KG block. The bids of the company ignored the actual cost involved which exposed the company against high risk in exploration activities," CAG report stated.The main reasons for the incorrect estimation, CAG said, was adoption of deficient geological model prepared by its joint venture partnre, Geo Global Resources of Canada, which led to escalation in the cost of exploration phase from Rs 531.94 crore to Rs 6,265.68 crore. Because of the adoption of the Geo Global Resources's model, GSPC had to drill total 12 high-pressure-high- temperature wells instead of estimated four wells, CAG said, adding that admitting the Canadian firm into the KG block consortium without any financial risk, but only on the strength of their technical expertise did not yield the desired purpose.GSPC had given Geo Global Resources a stake in the block without any financial contribution on the ground that it was a technical expert. As a result, GSPC had to incur the Canadian company's share of USD 175.07 million towards the exploration cost besides losing Rs 104.14 crore in interest during 2007-11.The functioning of the GSPC also came under severe criticism from the CAG right from bidding process, to explorations, development activities, trading of gas, management of finances and for lack of proper internal control and monitoring system.Further, the CAG has said that the exploration and development activities undertaken by the company suffered with several deficiencies such as delay in acquisition of study data, excessive time in drilling work, delay in preparing field development plan and others which led to financial loss to the company.The CAG has observed that GSPC suffered financial losses in trading activities on account of undue favours extended to buyers by way of non-recovery of Take or Pay (ToP) charges, sale of gas/oil at price below purchase cost. During 2006-11, the total revenue from trading of gas was Rs 19,245.39 crore and the revenue from sale of its own production of gas and oil was Rs 1,563.63 crore which indicated that GSPC was focusing mainly on trading rather than production activity, it observed.The CAG also found it "unreasonable" that a time of 14 to 106 months was taken (during 2006-11) for completing the environment impact studies (EIS) in eight out of nine domestic blocks where the company was operator.Besides, against the estimated drilling rate per day of 27.76 meters, the actual rate was 22.49 meters in drilling 16 wells in KG offshore block between July 2004 and April 2010.This resulted in avoidable expenditure of Rs 180.91 crore on drilling work, the report stated.The company incurred total expenditure of Rs 104.29 crore on drilling wells without obtaining approval of Government of India for the field development plan (FDP). In absence of necessary approval, the said expenditure could not qualify for recovery, it observed.The CAG has also observed that the management of finances by the company was not prudent and efficient as it financed the exploration/development activities through short term borrowing, which is against the accepted business practices.(PTI)
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Embarrassed by CAG report on revenue losses to government on one hand and an UK-based hedge fund serving notice on government for alleged violations of international treaties related to its investments in Coal India Ltd, on the other, a hapless government tried to set its house in order on Thursday. The beleagured Coal India board on Thursday approved the new draft fuel supply pact, but with riders, according to a government official. The Coal Ministry has also expedited the process for appointing CMD of the state-owned company.A contentious clause in the model Coal India agreement with power generating firms, under which world's largest coal producer would commit itself to supply at least 80 per cent of the fuel to these users, is in the final stage of completion.The board of directors of the Coal India Ltd (CIL) has been meeting for the last two days to resolve the issue, amidst reservations from some of the independent directors and legal threat from the UK-based hedge fund, TCI, which is a minority shareholder in the company."It (Fuel Supply Agreement) is in the final stages. There has been some technical problems and they are being addressed," Power Minister Sushilkumar Shinde told reporters in New Delhi on Thursday.The Coal Ministry has been in the news following disclosure of a draft report of the Comptroller and Auditor General (CAG) which had pointed out that the government lost Rs 10.67 lakh crore on account of allotment of coal blocks to 100 private and public sector companies during 2004 to 2009.Early this month, the coal ministry had said that was likely to issue show-cause notices to coal blocks holders, asking them to either start production or face deallocation.The decision to issue show-cause notices to those sitting idle on captive coal blocks was taken by a panel looking into the development of reserves, sources said.Concerned over the increasing demand supply gap, the coal ministry had in January reviewed the progress of mines allocated to companies, including Tata Steel , Coal India , SAIL and NTPC for captive use.The progress of coal blocks allotted to firms, including Jindal Power, Jindal Steel & Power, BALCO and MMTC was also reviewed during the two-day meeting.After meeting with the power sector honchos, Prime Minister's Office (PMO) had directed the CIL last month to ink FSAs with 80 per cent supply commitment before March-end for power plants which have been commissioned on or before December 31, 2011.However, the PMO direction did not find favour with independent directors of the CIL, which is a listed and traded PSU. The minority shareholders also questioned the move. Earlier, independent directors in the board meeting held on March 22 had resented a clause in the FSA for ensuring at least 80 per cent supply of the commitments to power plants.The board had also met earlier twice over the past one week, but no consensus could be reached as there were disagreements over some of the clauses in the FSA.The independent directors, according to sources, had opposed to the clause for ensuring at least 80 per cent supply of the commitments to the power plants stating that the PSU as facing problems in enhancing coal production and was not in a position to meet the commitment.Amid power plants facing a supply crunch, the PMO had said that FSAs would be signed for full quantity of coal mentioned in the Letters of Assurance (LoAs) for a period of 20 years.It had elaborated that if the supply remains below 80 per cent, then CIL would be penalised and would be provided incentives if it was found above 90 per cent.In case, CIL is unable to meet the obligations, the company would have to arrange for fuel through imports or other arrangements, it had said. On March 27, The government asked companies having captive coal mines to provide by month end the latest details of coal use, including reasons for delay in developing allocated reserves.The latest move comes on the heels of Coal Ministry announcing to issue show-cause notices to those entities that are yet to develop allocated reserves to either begin production or face deallocation.In a letter to all captive coal block allocatees and joint venture firms, the Coal Ministry said, "You are requested to send the detailed information for the quarter ending March 2012, in respect of allocated coal ... block and associated end use projects along with the reasons on delay in implementation of the coal ... project to this office by March 31, 2012.""Reasons for delay in achieving the milestones of coal block projects as well as end use project may be furnished properly to frame a suitable reply to Ministry of Coal," the letter said.UK's TCI Serves Notice To Govt On Coal IndiaBritish hedge fund The Children's Investment Fund Management served a notice to the Indian government on Wednesday for alleged violations of international treaties related to its investments in Coal India.The latest salvo comes close on the heels of the UK hedge fund threatening to initiate legal action against the board members of state-run Coal India Ltd (CIL) for failing to protect the interest of minority shareholders."The Republic of India's recent conduct with respect to CIL has seriously impaired the business activities and operations of CIL and has contravened each of the treaties," The Children's Investment Fund (TCI) said in a letter to the Finance Ministry on March 27.According to the letter, the Indian government's actions have breached the country's treaties with Cyprus as well as the UK and Northern Ireland, where the TCI's funds are domiciled.TCI's investments in Coal India are through TCI Cyprus Holding Ltd and Talos Capital Ltd, which is registered in Ireland.The hedge fund has said the letter was a "written notification of a dispute arising" out of breach of the two treaties.Among the alleged violations cited in the letter are the government's direction that CIL price and sell coal under Fuel Supply Agreements (FSAs) at a substantial discount to international market rates.TCI has also pointed out that government is "generally controlling and issuing directions to the company (CIL) in a manner which is abusive to minority shareholders".It has requested for formal negotiations with Indian government on the issue for amicable settlement of the claims under the respective treaties."Failing such settlements within six months, we reserve our rights to initiate arbitration" in accordance with Cyprus and UK treaties, according to the letter.Govt Expedites Appointment Of Coal India CMD Amid concerns expressed by a UK- based minority investor over the functioning of Coal India (CIL), Coal Ministry has expedited the process for appointing CMD of the state-owned company.The post has been lying vacant after Partha Bhattacharyya retired in February last year.The Coal Ministry, according to a top official, has sent the proposal for appointment of a regular Chairman and Managing Director (CMD) to Appointment Committee of the Cabinet (ACC) for approval. The list of contenders include S S Narsing Rao, CMD of Singareni Collieries (SCCL)."The Ministry has sent the proposal for appointment of CMD to ACC last Friday. The government will take a call soon", the official said.The government has not able to fill the top slot in the state-owned coal major CIL after Bhattacharyya retired on February 28, 2011. Instead, it decided to give additional charge to N C Jha, director technical, CIL.After Jha's retirement on January 31, 2012, the charge was given to Zohra Chatterji, Additional Secretary in the Coal Ministry.(With Agencies)
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