With power producers clamouring for its intervention in ensuring coal supplies, the Prime Minister's Office Wednesday said it has asked state miner Coal India to firm up fuel supply agreements (FSA) with the firms ready to generate electricity by March 31.
Promoters of power generating companies, including Ratan Tata and Anil Ambani, met Prime Minister Manmohan Singh last month seeking his help in dealing with the erratic supply of coal.
A majority of the power plants in India are thermal and dependant on coal supplies.
The prime minister deputed Principal Secretary Pulok Chatterjee to look into the problem, and Chatterjee formed a committee to suggest solutions for the troubled sector.
According to the suggestions of the committee, "for power plants that have been commissioned up to 31st December, 2011, FSAs (fuel supply agreements) will be signed before March 31, 2012," said the PMO.
"During the meeting, it was agreed that Coal India Limited will sign FSAs with power plants that have entered into long-term PPAs (power purchase agreements) with power distribution companies and have been commissioned/ would get commissioned on or before 31st March 2015," it added.
As per the directive of the PMO, Coal India will have to sign the FSA for the entire quantity of coal mentioned in the Letters of Assurance (LoAs) and do so for a period of 20 years.
If the supply falls below 80 percent of the assured amount, the miner will have to pay a penalty.
"In case of any shortfall in fulfilling its commitment under the FSAs from its own production, Coal India Limited will arrange for supply of coal through imports or through arrangement with state or central public sector undertakings who have been allotted coal blocks," said the PMO.
"The proposed course of action has been approved by the prime minister."
India suffers from a perennial electric shortage with many regions around the country going without power that at times last for hours. The inadequate electricity supply is one of the impediments to industrial growth as well.
The sector is dependant mostly on coal and Coal India, the main supplier, has found it difficult to keep up with demand. New mines are difficult to develop given the time taken in getting environmental clearances, while imported coal is much costlier.
The shortfall rose dramatically last year, when high rainfall in some of the mining areas and labour trouble at Coal India resulted in many regions of the country being plunged into darkness.
The PMO said its directive to Coal India would bring relief to the sector.
"These arrangements would provide relief to power plants with estimated capacity of more than 50,000 MW. The proposed set of arrangements is being seen as a major step forward in solving the problems of power sector in the country and is likely to boost investors' confidence in India's power sector."
"It will help not only in achieving power generation capacity targeted in the 12th Plan but also assist in achieving the targeted growth of GDP."