Coal India to review fuel deals with cement firms

Cement companies, which have been struggling to secure coal linkages, may be set for some relief. Coal India (CIL) will remove some clauses that are hindering the signing of fuel supply agreements with cement companies.

A K Sarkar, director (marketing), CIL, said most cement companies that have been given letters of assurance are yet to sign the fuel sale agreement because there are some clauses that they are yet to fulfill. “The companies say the milestones are stiff and unnecessary. Their demand is under consideration and we will be taking decision soon, which will pave the way for the signing of the fuel supply agreements.”

Cement companies consume 3% of the coal produced in the domestic market. They need to enter into a deal with CIL, which will mine the blocks allotted to the cement firms.
The new coal distribution policy, which came into effect from October 2007, says that companies having an annual requirement of more than 4,200 tonnes will need to enter into fuel supply agreements (FSAs) with CIL or its subsidiaries.

Initially, a letter of assurance is issued, which provides for assured supply of coal to developers (cement companies) if they meet stipulated milestones. Once the milestones are met, holders of the letter are entitled to enter into a fuel sale agreements with CIL for a long-term supply of coal.Cement companies say getting environment clearance and the “coal mafia” hinder their ability to ensure smooth coal supply for their plants.

“The biggest issue is getting environmental clearances, which takes ages. Officials have to run from pillar to post in the ministry’s office to get things done. In countries like Indonesia, South Africa and Australia, the quality of coal available is better and clearances come sooner,” said an official with a cement company who did not wish to be named.

Vinod Juneja, managing director, Binani Cement, says, “The environmental clauses and the tussle between central and state government where the mine is allotted also delays the mining process”.The company was recently allotted some coal blocks in Chhattisgarh.
An official with another cement sector player, which has a significant presence in eastern India, said, “The coal mafia is a major issue hindering mining, even if you get other clearances”.

“Also the coal available in the domestic market has high fly ash content and dumping that waste is a major problem. That’s why cement companies are looking at acquiring mines overseas rather than depending upon Indian coal.”