CIL gets presidential order to supply what govt wants

In an unprecedented move, the government on Tuesday issued a presidential directive forcing state-owned miner Coal India Ltd  to supply at least 80 per cent of the quantity committed to power companies.

However, the directive gave the company freedom to relax the penalty that would be payable in case of a shortfall.

Currently, the company pays as penalty 10 per cent of the average cost of the overall quantum of the shortfall on 80 per cent of the committed Annual Contracted Quantity.

The company board, in its meetings last week, had put a relaxation in the 10 per cent penalty clause as a condition before the government for signing Fuel Supply Agreements at 80 per cent commitment.

"We have agreed on this condition.

"In the presidential directive we have issued today, CIL has been given the freedom to choose the level of relaxed penalty at which it is comfortable and can assure supply," coal minister Sriprakash Jaiswal told Business Standard.

Asked whether issuing a presidential directive forcing a listed Maharatna company -- the world's largest coal producer -- to commit supply against its wish would affect investor confidence, Jaiswal said, "CIL was asked to commit 100 per cent supply by the Prime Minister's Office but we brought it down to only 80 per cent. Is this unfair?"

He also expressed hope all the FSAs with power companies would be signed within a week.

The minister also said CIL would not be hit adversely by any

possible penalty outgo, owing to its robust financial health.

"The company has produced four million tonnes of extra coal and has made 10 per cent growth in profit at around Rs 12,000 crore (Rs 120 billion) in 2011-12. It will be able to manage," he said.

The Bombay Stock Exchange-listed CIL has not yet announced its annual results for the financial year ended March 2012.

For the third quarter ended December 2011, the company registered a 54 per cent jump in net profit at Rs 4,037 crore (Rs 40.37 billion).

Total income grew 24 per cent to Rs 17,205 crore (Rs 172.05 billion) during the quarter.

Experts say today's directive could dampen investor sentiment in the company.

The move, however, comes as a breather for power firms struggling on the fuel front, as it would ramp up fuel supply for projects of 30,000-Mw capacity.

CIL did not respond to the development.

The directive has followed disapproval of a few of the company board members last week to a PMO directive asking CIL to sign FSAs with power firms.

After a high-level meeting with a delegation comprising chiefs of the country's most powerful companies in January, the PMO had set a March 31 deadline for CIL to sign full supply agreements for all projects commissioned before December 2011.

CIL's production remained flat at 431 million tonne last fiscal.

The company produced around 436 MT in 2011-12, missing a lowered target of 440 MT.

The company's share price on the BSE on Tuesday closed at Rs 342.7, up 0.6 per cent from the previous close.