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PM Instructs Coal India To Sign FSA With Power Companies

After the management of the top power companies met the prime minister on January 18, 2012, Dr Manmohan Singh has instructed to Coal India to assure the safety of coal supply to the power companies. The impact of the same was seen immediately with the power index rising over 1 per cent yesterday and over 5 per cent today.

The PM has indicated that Coal India should sign fuel supply agreements (FSAs) with the power companies which have long-term power purchase agreements and which have already commissioned their power plants or will get commissioned on or before March 31, 2015. For the power plants which have been commissioned before December 31, 2011, the FSAs need to be signed before March 31, 2012 for the full quantum of the coal as signed in the letter of assurance (LoA).

If there is any shortfall in coal production then, as per the instructions of the PM, Coal India will be required to arrange for the coal supply through coal imports or through the coal blocks allotted to state/central PSUs. The letter mentioned on the website of the prime minister also mentions that about 50,000 MW of the capacity will get relief on the front of fuel supply.

Table 1 Movement In The Power Stocks Today

Company

Change (%)

Lanco Infra

21.67

JSW ENERGY

11.34

GVK Power

8.82

ADANI POWER

7.6

Reliance Power

4.77

Tata Power

3.66

NTPC

3.05

GMR Infra

2.64

PTC India

2.35

Reliance Infra

2.34

Power Grid Corp

2.17

NHPC

2.02

Torrent Power

1.44


Earlier in the month of December, the Shunglu Committee had recommended the creation of a special purpose vehicle (SPV) backed by the RBI to purchase the loans of the SEBs. Besides, the committee had also suggested that the franchisee model should be practiced in an additional 255 towns. This has also been seen as a major boost to the sector though the execution of the same remains a key concern.

In our opinion, this is a very meritorious decision by the PM. We also think this could be followed by few more decisions on long-time haunting issues like power tariffs and land acquisition. We believe that the companies importing coal will now move to domestic coal and their profitability would get some boost.


Coal India, for the nine-month ended December, has reported 2.74 per cent decline in production which is a key concern for us. Further, gas production in the country is also declining, thereby increasing the worries of the gas-based plants. We also believe that with this the companies importing coal would also tie contracts with Coal India and let it shoulder the responsibility of importing the coal. With the announcement of the budget and planning commission report, the scenario will become clearer. On the back of this investors should wait for some time to see how the things move on the execution front. 

Table 2 Installed Capacity Based On Fuel

Type Of Capacity

Installed Capacity

% Of Total

Coal

1,04,816.38

56%

Gas

17,742.85

9%

Diesel

1,199.75

1%

Nuclear

4,780

3%

Hydro

38,848.4

21%

Renewable

20,162.24

11%

Total

1,87,549.62

100%


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