Shadow of CoalGate expected on CIL's fuel supply agreements

31 August, 2012

Ahead of a meeting to finalise fuel supply agreements (FSAs) with power producing companies, one of the independent directors on the board of Coal India Limited (CIL) has cautioned the state-run coal producer to move carefully in the wake of alleged coal scam.

IN A note SK Barua, the independent director on CIL's board, has made it clear that the FSAs should not be signed with those power firms who have been named as beneficiary in the CAG report on coal block allocation. It seems the recommendation is being made to keep CIL away from controversies and to prevent power generators from enjoying double bonanza.

In straight forward words Barua had said that the fuel supply agreements cannot be delinked from coal scam as per media reports. After this reservation expressed by one of the independent directors it is expected that the CIL board meeting may be very stormy and decision to finalise agreements may be differed also.

Notably, Coal India Limited has a monopoly in coal production and distribution. CIL, the largest coal producer and supplier in the country, during the last meeting, had also agreed to adopt the policy of paying high penalties to its customers if it failed to supply contracted amount of the coal.

The alleged coal scam to the tune of Rs. 1.86 lakh crore as per the CAG report has rocked the country and has made the Parliament non-functional since the day it surfaced. The apex auditor in its report has said that during the period of 2004-2008, the government allocated 57 coal blocks to private players without auction. In its reports, the CAG has also pointed out procedural lapse during the allocation of coal blocks.

Unlike the previous allocations the government has adopted the policy of auction to allocate 54 coal blocks next year. Rating agency CRISIL has been approached to design the methodology of the auction to distribute coal blocks holding an expected reserve of 18.22 billion tonnes.