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IMMEDIATE
No. 23011/15/2016-CPD/CLD
Government of India
Ministry of Coal

Shastri Bhawan,
New Delhi, the 22nd May, 2017

To

Chairman-cum-Managing Director,
Coal India Limited,
Coal Bhawan, New Town,
Rajarhat, Kolkata-700156.

(ii) Chairman-cum-Managing Director,

SCCL, PB No. 18,
Khairatabad, Hyderabad,
Telangana.

Subject: Signing of Fuel Supply Agreement (FSA) with Letter of Assurance (LoA)
holders of Thermal Power Plants- Fading Away of the existing LoA-FSA Regime
and Introduction of a New More Transparent Coal Allocation Policy for Power
Sector, 2017- SHAKTI (Scheme for Harnessing and Allocating Koyala (Coal)
Transparently in India).

Sir,

The proposal of Coal linkages Allocation Policy for Power Sector has been under
examination in this Ministry. With the approval of Cabinet Committee on Economic
Affairs (CCEA), the following policy guidelines for allocation of Coal linkages to Power
Sector have been decided:

(A) Under the old regime of LoA-FSA:

i. FSA may be signed with the pending LoA holders after ensuring that the plants
are commissioned, respective milestones met, all specified conditions of the LoA
fulfilled within specified timeframe and where nothing adverse is detected against the
LoA holders. The outer time limit within which the power plant of LoA holders must be
commissioned for consideration of FSA shall be 31.03.2022, failing which LoA would
stand cancelled. Coal supply to these capacities may be at 75% of ACQ. The coal
supply to these capacities may be increased in future based on coal availability.

i. The 583 pending applications for LoA need not be considered and may be
closed.

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iii. The capacities totaling about 68,000 MW as per the decision of CCEA dated
21.06.2013 would continue to get coal at 75% of ACQ even beyond 31.03.2017. The
coal supply to these capacities may be increased in future based on coal availability.

iv. About 19,000 MW capacities out of the 68,000 MW could not be commissioned
by 31.03.2015. Coal supply to these capacities may be allowed at 75% of ACQ against
FSA provided these plants are commissioned within 31.03.2022. The coal supply to
these capacities may be increased in future based on coal availability.

v. Actual coal supply to power plants shall be to the extent of long-term PPAs with
DISCOM/State Designated Agencies (SDAs) and medium term PPAs to be concluded
in future against bids to be invited by DISCOMs as per bidding guidelines issued by
Ministry of Power.

With these, the old regime of LoA-FSA would come to finality and fade away.

(B) The following shall be considered under a New More Transparent Coal Allocation
Policy for Power Sector, 2017-SHAKTI (Scheme for Harnessing and Allocating Koyala
(Coal) Transparently in India):

(i) CIL/SCCL may grant Coal linkages for Central Government and State
Government Gencos at the notified price of CIL/SCCL. Similarly, coal linkages may be
granted for JVs formed between or within CPSUs and State Govt./PSUs. The
recommendations shall be made by Ministry of Power.

(ii) CIL/SCCL may grant coal linkages on notified price on auction basis for power
producers/IPPs having already concluded long term PPAs (both under section 62 and
section 63 of The Electricity Act, 2003) based on domestic coal. Power producers/IPPs,
participating in auction will bid for discount on the tariff (in paise/unit). Bid Evaluation
Criteria shall be the non-zero Levellised Value of the discount (applying a pre-notified
discount rate) quoted by the bidders on the existing tariff for each year of the balance
period of the PPA. Ministry of Coal may, in consultation with Ministry of Power, work out
a methodology on normative basis to be used in the bidding process for allocation of
coal linkages to IPPs with PPAs.

(a) The discount by generating companies would be adjusted from the gross amount of
bill at the time of billing, i.e., the original bill shall be raised as per the terms and
conditions of the PPA and the discount would be reduced from the gross amount of the
bill. The discount shall be computed with reference to scheduled generation from
linkage coal supplied under this auction. This would be applicable to both the PPAs
contracted under Section 62 as well as Section 63 of the Electricity Act, 2003.

(b) Accordingly, PPA may be amended or supplemented mutually between the

developer and the procurer to pass on the discount to the procurer and the approval of
the Appropriate Commission obtained, as per the provisions of the PPA or Regulations.
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(c) FSA shall be signed with the successful bidders after the terms and conditions for
signing of FSA are met and the Appropriate Commission has approved the amendment
or supplement to the PPA.

(iii) CIL/SCCL may grant future coal linkages on auction basis for power producers/IPPs
without PPAs that are either commissioned or to be commissioned. All such power
producers/IPPs may participate in this auction and bid for premium above the notified
price of the coal company. The methodology for bidding of linkages shall be similar to
the bidding methodology in the policy on auction of linkages of Non-Regulated Sector
dated 15.02.2016. Coal drawal will be permitted only against valid long term and
medium term PPA with Discoms/State Designated Agencies (SDAs), which the
successful bidder shall be required to procure and submit within two years of completion
of auction process.

(a) In case of the commissioned capacities, FSA shall be signed with the successful
bidders after completion of the auction process provided that the standard terms and
conditions for signing of FSA are met. In case of others, a Letter of Assurance (LoA)
may be issued by CIL/SCCL to the successful bidder and FSA shall be signed after
commissioning of the unit and fulfilling other conditions of the LoA.

(b) Further, if the power producer/IPP, does not start drawing the coal within two
years of submission of the PPA, the FSA or the LoA, as the case may be, shall stand
terminated.

(iv) Coal linkages may also be earmarked for fresh PPAs, by pre-declaring the
availability of coal linkage with description, to the States. States may indicate these
linkages to Discoms/SDAs.

The States/Discoms may, based on such linkages, undertake tariff based

competitive bidding for long-term and medium-term procurement of power as
per the guidelines issued by Ministry of Power and may recommend grant of
these linkages to successful bidders. In case of the commissioned capacities,
FSA shall be signed with the successful bidder after completion of the auction
process. In case of the likely to be commissioned capacities, a Letter of
Assurance may be issued by CIL/SCCL to the successful bidder and FSA shall
be signed on commissioning of the unit. The successful bidder shall be required
to meet the conditions specified in the Letter of Assurance and FSA. The
existing FSA/LoA holders may also participate in the competitive bidding for
PPA and, if successful, shall surrender proportionate quantity of the FSA/LoA
for the corresponding tenure; or

II. The States/Discoms may recommend grant of the earmarked linkages to

capacities that are covered under exceptions and proviso clauses of para 5.2
of the Tariff Policy dated 28.01.2016. A Letter of Assurance may be issued by
CIL/SCCL to such capacities and FSA shall be signed on commissioning of
the unit.
 Provided
(a) The priority between (iv) I and (iv) II above will be decided by the State
Government concerned considering its public interest and based on its
requirements.
(b) The quantity remaining unutilized for 2 years continuously shall lapse.
Detailed policy guidelines for sub para (iv) shall be formulated by Ministry of
Power.

(v) Power requirement of group of States can also be aggregated and procurement of
such aggregated power can be made by an agency designated by Ministry of Power or
authorized by such States on the basis of tariff based bidding. Coal linkages will be
earmarked for such agencies by pre-declaring the availability of coal linkage with
description, based on which such agency will undertake tariff based competitive bidding
for long-term and medium-term procurement of power and recommend grant of these
linkages to successful bidders. The methodology in this regard shall be formulated by
Ministry of Power.

(vi) Linkages shall be granted for full normative quantity to Special Purpose Vehicle
(SPV) incorporated by nominated agency for setting up Ultra Mega Power Projects
(UMPP) under Central Government initiative through tariff based competitive bidding
under the guidelines for determination of tariff, on the recommendation of Ministry of
Power.

(vii) Ministry of Coal in consultation with Ministry of Power may, subject to the
availability of coal and the condition that such supply does not adversely impact the
availability of coal for plants based on domestic coal, formulate a detailed methodology
of a transparent bidding process for allocating coal linkages to IPPs, having PPAs
based on imported coal, with full pass through of cost saving to consumers. Further, the
successful bidder would not be allowed to claim any upward revision in the tariff on
account of such coal linkages.

2. Since the Competent Authority has approved the proposal of Coal linkages
Allocation Policy for Power Sector as mentioned in para 1 above, policy guidelines are
circulated to all concerned for further action. The action taken report shall be sent to this
Ministry from time to time.

(A. . Das)
Under Secretary to the Govt. of India

Copy to:
1. Secretary, Ministry of Power, Shram Shakti Bhawan, New Delhi.
2. Secretary, Department of Economic Affairs, Ministry of Finance, North Block,
New Delhi.
3. CEO, NITI Aayog, Yojana Bhawan, New Delhi.
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4. Chairman, Railway Board, Rail Bhawan, New Delhi

5. Secretary, Ministry of Steel, Udyog Bhawan, New Delhi
6. Secretary, Department of Industrial Policy and Promotion, Udyog Bhawan, New
Delhi
7. Secretary, Ministry of Law and Justice, Department of Legal Affairs, Shastri
Bhawan, New Delhi
8. Secretary, Ministry of Chemicals and Fertilizers, Department of Fertilizers
9. Secretary, Ministry of Mines, Shastri Bhawan, New Delhi
10. Secretary, Department of Financial Services, Jeevan Deep Building New Delhi.
11. Prime Minister's Office, (Kind Attn. - Shri A. K. Sharma, Joint Secretary), South
Block, New Delhi.
12. Cabinet Secretariat (Kind Attn. — Shri S. G. P. Verghese, Director), Rashtrapati
Bhawan, New Delhi.
13. Director (Marketing), Coal India Ltd. Kolkata, Coal Bhawan, New Town, Rojarhat,
Kolkata-700156.
14. ED/Coal Movement, SCCL, PB No. 18, Red Hills, Khairatabad, Hyderabad,
Telengana
15. CMD, CMPDI, Gondwana Place, Kanke Road, Ranchi, Jharkhand.
16. Chairman, Central Electricity Authority, Sewa Bhawan, R.K. Puram, New Delhi.

Copy also to:

Chief Secretaries of all States/UTs

Copy for information to:

1. OSD to MoS(I/C), Coal, 2.PS to MoS (I/C), Coal, power & N&RE, 3. PSO to
Secretary, Ministry of Coal, 4.PPS to Additional Secretary, Ministry of Coal, 5. Sr. PPS
to Joint Secretary (RPG), Ministry of Coal, 6. PS to JS(VB), Ministry of Coal, 7. PPS to
JS (RKS), Ministry of Coal, 8.PS to JS & FA, Ministry of Coal, 9. PS to Adviser
(Projects), Ministry of Coal, 10. PS to Economic Adviser, Ministry of Coal, 11.PS to
Director, CPD, Ministry of Coal, 12. Shri G.K. Vashishtha, GM(S&M), CIL, Laxmi Nagar,
Delhi.

Copy to Director, NIC, M/o Coal with the request to place the same on the website of
this Ministry.

A. Das)
Under Secretary to the Govt. of India