Presidential directive to end coal supply woes?

In the past few years, a severe shortage of coal in India has led to a huge energy deficit, restricting the ability of power companies to generate to their full capacity. The gap between the demand and supply of coal widened to 161.5 million tonnes in 2011-12. This gap has impaired the interests of various stakeholders in power projects as they are unable to meet power supply commitments under the power purchase agreements (PPAs) with off-takers.

Due to the shortage and uncertainty in the supply of coal, the Ministry of Coal (MoC) directed India’s largest, government-controlled coal supplier – Coal India Limited (CIL) and its subsidiaries – to enter into fuel supply agreements (FSAs) by 31 March for projects commissioned after 31 March 2009 and those scheduled to be commissioned by 31 March 2015.

The direction applied to projects that had entered into long-term PPAs with distribution licensees. However, due to opposition by the independent directors of CIL, these directions were not adhered to. As a result, the president of India on 3 April issued a decree directing CIL to comply with the MoC’s directions.

Neeraj Menon is a counsel in the Delhi office of Trilegal, where Niharika Puri is an associate. Trilegal is a full-service law firm with offices in Delhi, Mumbai, Bangalore and Hyderabad.