Coal India to not renew FSAs with customers who cancel pacts on ‘frivolous grounds’

  • Major customers walked out of deals to buy fuel, citing poor quality and high transport costs

  • Coal India has a third-party sampling system and independent consultants to test quality, the PSU said

New Delhi: Coal India may not sign new FSAs (fuel supply agreements) with customers, for a period, who renege on contracts on frivolous grounds, the state-run coal miner said days after major customers walked out of deals to buy fuel, citing poor quality and high transport costs. It said efforts to supply coal of better quality and larger quantity than what is committed have increased revenue. The company had made a provision of Rs 1,365 crore for variation in coal quality in previous years, but it withdrew the provision in the last fiscal.

“Coal India’s supplies, above agreed annual contracted quantity to its customers… also netted the company… over Rs 1,760 crore under performance incentive during the previous two fiscals,” said the PSU in an official statement.

‘Agreements being cancelled on frivolous grounds’

On companies cancelling contracts for poor quality and high transport cost, a company executive said, “We feel these are lame excuses. The company takes a serious cognizance of its coal quality. Transportation costs being high is a frivolous reason to pull out as customers willingly obtain linkage (coal supply contract) for road mode with full knowledge of the distances.”

“Customers have paid premiums for securing coal through auctions in the past without complaints. Now, with Covid-19 induced slowdown when the demand for coal is low and the floor prices for coal are relatively lower, some of the customers are moving away citing reasons that are not tenable,” said Coal India.

Coal India rules out low-quality as a concern

Coal India has a third-party sampling system and independent consultants to test quality. The statement mentions that coal quality variance has come down due to these efforts and prices are charged in line with the actual grades of coal supplied to consumers. Credit or debit notes are issued in case of variation in grade, if any, and there is a redressal mechanism to settle these issues amicably.

“During the pandemic, we stood by our customers offering them a slew of friendly measures, sops and concessions and continued supplies,” the executive said.

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