In a step pushed by Prime Minister Manmohan Singh to provide relief to the power sector and boost investor confidence, Coal India will sign by March- end agreements for supply of fuel to power projects commissioned up to December 2011.

The decision, which addresses long-standing tussle between the state-controlled coal sector and private power producers, is an outcome of the meeting of Committee of Secretaries (CoS) constituted by the Prime Minister to look into issues impacting the power sector, held on February 1.

During that meeting, it was agreed that Coal India would sign Fuel Supply Agreements (FSAs) with power plants that have entered into long-term Power Purchase Agreements (PPAs) and have been commissioned or would get commissioned on or before March 31, 2015.

"For power plants that have been commissioned up to December 31, 2011, FSAs will be signed before March 31, 2012," the Prime Minister’s Office said in a statement.

Welcoming the move, private power producers said close to 25,000 MW capacity generation plans would get immediate boost.

Further, the FSAs would be signed for full quantity of coal mentioned in the Letters of Assurance (LoAs) for a period of 20 years. If the supply is below 80 per cent, then Coal India would be penalised whereas in case the supply is above 90 per cent, the company would be provided incentive.

In case, Coal India is unable to meet the obligations, the company would have to arrange for fuel through imports or other arrangements, the statement said.

Noting that the proposed course of action has been approved by the Prime Minister, the statement said these arrangements would provide relief to power plants with estimated capacity of more than 50,000.

"The proposed set of arrangements is being seen as a major step forward in solving the problems of power sector in the country and is likely to boost investors' confidence in India's power sector," the PMO statement said.

"It will help not only in achieving power generation capacity targeted in the 12th Plan but also assist in achieving the targeted growth of GDP," it added.

The Committee of Secretaries is headed by Prime Minister's Principal Secretary Pulok Chhatterji. The panel was set up after top industrialists, including Ratan Tata of Tata Power, highlighted the power sector's woes in a meeting with the Prime Minister on January 18.

Association of Power Producers' Director General Ashok Khurana said it would remove the uncertainties regarding the quantum of coal supply from Coal India for power projects.

"This will give immediate relief to all projects commissioned after March 2009, estimated at about 25,000 MW, which were operating at sub-optimal capacity due to inadequate supply of coal against the confirmed Letter of Assurances (LOAs)," Khurana said in a statement.

Commenting on the development, Power Secretary P Uma Shankar said it was a positive step and would also remove uncertainties regard funding for many projects.

According to the PMO statement, with the resolution of the immediate major problem, the attention of the Committee would now shift to other medium and long term issues affecting the power sector.

"In case of any shortfall in fulfilling its commitment under the FSAs from its own production, Coal India Ltd will arrange for supply of coal through imports or through arrangement with State/Central PSUs who have been allotted coal blocks," it noted.