NTPC’s Board has approved the fuel supply agreement (FSA) with CIL
for post FY09 power plants, as per Economic Times. CIL's Board is
scheduled to consider the FSA today, after which the final agreement will
be signed. This puts a lid on the uncertainty surrounding the fuel pact for
~10GW capacity to be commissioned over FY10-15, which had coal LoA
from CIL. This and other developments below are positive for NTPC, we
reiterate OW.
Closer to resolving the standoff over coal quality-pricing mismatch.
NTPC Board has agreed to CIL’s decision to put in place systems for
third party sampling and analysis at the loading end before Sep-2013.
CIL would also ensure that auto mechanical samplers of coal are made
operational in a time bound manner. This solution to the standoff with
CIL is a long term positive for NTPC, as lowering price quality
mismatches would allow it to remain competitive in cost of generation.
Incentives to CIL only if supply thresholds are exceeded. For new
FSAs, CIL would be eligible for incentives only if they meet and exceed
80% of the contracted quantity of domestic coal. In our assessment,
NTPC’s stand is that they do not want to pay incentives if the threshold
is crossed using coal imports by CIL. NTPC has set import target for
FY14 at 16MMMT (vs. 9MMT in FY13), lower than 24MMT target
intimated in Aug-2012.
There is give and take too. NTPC has decided that if CIL supplies stone
and mud with coal or inferior grade coal, the quality of the fuel will be
adjusted for payments. Only after adjusting volumes for quality would
incentives be worked out. As a leeway NTPC will accept coal quality
below 3100Kcal/kg, a move it was opposed to earlier. However, NTPC
would incentivize CIL only for 25% of the inferior grade coal quantities
supplied.
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for post FY09 power plants, as per Economic Times. CIL's Board is
scheduled to consider the FSA today, after which the final agreement will
be signed. This puts a lid on the uncertainty surrounding the fuel pact for
~10GW capacity to be commissioned over FY10-15, which had coal LoA
from CIL. This and other developments below are positive for NTPC, we
reiterate OW.
Closer to resolving the standoff over coal quality-pricing mismatch.
NTPC Board has agreed to CIL’s decision to put in place systems for
third party sampling and analysis at the loading end before Sep-2013.
CIL would also ensure that auto mechanical samplers of coal are made
operational in a time bound manner. This solution to the standoff with
CIL is a long term positive for NTPC, as lowering price quality
mismatches would allow it to remain competitive in cost of generation.
Incentives to CIL only if supply thresholds are exceeded. For new
FSAs, CIL would be eligible for incentives only if they meet and exceed
80% of the contracted quantity of domestic coal. In our assessment,
NTPC’s stand is that they do not want to pay incentives if the threshold
is crossed using coal imports by CIL. NTPC has set import target for
FY14 at 16MMMT (vs. 9MMT in FY13), lower than 24MMT target
intimated in Aug-2012.
There is give and take too. NTPC has decided that if CIL supplies stone
and mud with coal or inferior grade coal, the quality of the fuel will be
adjusted for payments. Only after adjusting volumes for quality would
incentives be worked out. As a leeway NTPC will accept coal quality
below 3100Kcal/kg, a move it was opposed to earlier. However, NTPC
would incentivize CIL only for 25% of the inferior grade coal quantities
supplied.
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