Prime minister out to aid coal-hungry power sector

While India’s coal reserves are among the largest in the world, the Indian power sector, which is one of the largest consumers of domestic coal, has been hit hard by the unavailability of coal. The problems of the coal sector, which have in turn affected the power sector, are well documented.

The current contractual framework for fuel supply protects coal suppliers if they supply up to 50% of the normative requirement under the fuel supply agreement (FSA). Power producers need an alternate source for the remainder and, to bridge the gap, often have to import coal, leading to significant increases in fuel cost.

Out of sync

In most international power purchase agreements, the coal supplier bears the risk of failing to supply the contracted quantity of coal, and is liable to pay the power producer liquidated damages, on a supply-or-pay basis, for such failure. Also, fluctuations in fuel price are usually a straight pass-through to be borne by the ultimate consumers. Unfortunately, the current regulatory and contractual position in India does not reflect this in either aspect.

Avirup Nag is a senior associate in the Delhi office of Trilegal, where Amrinder Singh is an associate. Trilegal is a full-service law firm with offices in Delhi, Mumbai, Bangalore and Hyderabad.