Fuel Supply Agreement

The Cabinet Committee on Economic Affairs, chaired by the Prime Minister Shri Narendra Modi, has approved the signing of Fuel Supply Agreement (FSA) with the Letter of Assurance (LoA) holders.

Details of the Fuel Supply Agreement

  • Allocation of linkages for power sector shall be based on the auction of linkages or through Power Purchase Agreement (PPA) based on the competitive bidding of tariffs except for the State and the Central Power Generating companies and the exceptions provided in Tariff Policy, 2016. Coal drawal will be permitted against valid Long Term PPAs and to be concluded Medium Term PPAs.
  • The approved framework ensures that all projects with linkages are supplied coal as per their entitlement. This will ensure the rights of coal supplies for FSA holders and signing of FSA with LoA holders.
  • Allocation of linkages in future will be transparent and bidding based, barring some exceptions as per Tariff Policy. Future allocation/grant of linkages will be based on auction and/or tariff based bidding.¬† It attempts to make the optimal allocation of the vital natural resource across the power units.

Fuel Supply Agreement | Background 

  • The coal supply to the TPPs has been made as per the provisions of the New Coal Distribution Policy (NCDP), 2007. Till 2010, CIL had issued LoA for approximately 1,08,000 MW capacity and no new LoAs were issued thereafter due to the prevailing scarcity scenario.
  • The CCEA decision of 21.06.13 directed CIL to sign FSA with TPPs of about 78,000 MW capacity. The coal availability scenario has, now, emerged from scarcity to adequacy.
  • In this adequate coal availability scenario, the present policy proposes a fading away of the old linkage allocation policy and the emergence of a new linkage allocation policy based on transparent and objective criteria for the optimal utilization of the natural resources.
  • Coal linkage to the power sector is governed by provisions of the NCDP, 2007. Under the NCDP, a system of issuance of LoA was introduced wherein requests for Linkage/LoA are forwarded to MoP for its recommendations. These recommendations are placed before the Standing Linkage Committee (SLCLT) which authorizes the issue of LoA.

Fuel Supply Agreement | Benefits of the Policy

  • Coal available to all Power Plants in transparent and objective manner.
  • Auction to be made the basis of linkage allocations to IPPs; cheaper and affordable POWER FOR ALL.
  • The Stress on account of non-availability of linkages to Power Sector Projects shall be overcome. Good for the Infrastructure and banking Sector.
  • PPA holders to reduce tariff for linkage; the Direct benefit of the reduced tariff to Discom/consumers.

Raj Malhotra IAS Study Group.