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Power, Energy & Mining · 18 June 2026

Coal Linkage and Fuel Supply Agreements: A Guide for Thermal Power Generators

An overview of how coal linkage works for thermal power generators in India, the structure of a Fuel Supply Agreement, and the common disputes that arise around shortfall charges and force majeure.

By S&S Co. Advocates & Solicitors · Published 18 June 2026 · Informational content, not legal advice. See our disclaimer

What Coal Linkage Means

"Coal linkage" refers to the arrangement under which a thermal power generator is allotted a contracted source of domestic coal supply (typically from a subsidiary of a public sector coal company) to fuel its plant, formalised through a Fuel Supply Agreement (FSA) that fixes the Annual Contracted Quantity (ACQ) of coal the supplier commits to deliver and the generator commits to lift each year.

Key FSA Terms: ACQ, Trigger Levels and Shortfall

An FSA typically specifies a "trigger level": a percentage of the ACQ below which the coal supplier's delivery performance is considered deficient, entitling the generator to compensation, and conversely a shortfall in the generator's own offtake below its committed lifting obligation can expose the generator to shortfall charges calculated on the undelivered quantity's notified price. Getting the trigger-level and shortfall mechanics right at the drafting stage materially affects a generator's risk exposure over the life of the agreement.

Force Majeure Under an FSA

FSAs generally carry their own force majeure clause, distinct from and narrower than force majeure clauses commonly seen in PPAs, and disputes frequently turn on whether a particular event (a plant outage, a grid-side fault, a logistics disruption) falls within the FSA's specific definition. Because FSA disputes are contractual, courts have generally declined to entertain them in writ jurisdiction, leaving the arbitration clause the FSA itself contains as the primary forum.

Coal Quality and Grade Disputes

A separate recurring category of dispute concerns coal quality: grade slippage, where the delivered coal's calorific value falls below the contracted grade, entitling the generator to a price adjustment or compensation, subject to the sampling and testing protocol the FSA prescribes. Generators should ensure their own sampling protocol at the point of receipt is rigorous and contemporaneously documented, since grade disputes are heavily evidence-dependent.

Interaction With Coal Block Allocation

Generators that hold their own captive or allocated coal blocks, rather than relying solely on linkage coal, operate under a parallel and distinct regulatory framework (the Coal Mines (Special Provisions) Act, 2015 and associated allocation agreements) with their own milestone and compliance obligations that are independent of, and should not be confused with, FSA-based linkage arrangements.

Frequently Asked Questions

What is a Fuel Supply Agreement (FSA)?

A contract between a coal supplier and a thermal power generator fixing the Annual Contracted Quantity of coal the supplier will deliver and the generator will lift each year, along with the terms governing shortfall, quality and force majeure.

What happens if a generator fails to lift its committed coal quantity?

It can be liable for shortfall charges calculated on the undelivered quantity's notified price, unless the shortfall is excused under the FSA's own force majeure clause.

Where are FSA disputes typically resolved?

Through the arbitration clause the FSA itself contains: courts have generally declined to entertain FSA shortfall and quality disputes in writ jurisdiction, treating them as contractual disputes.

What is a coal grade slippage dispute?

A dispute over delivered coal quality falling below the contracted calorific value grade, which can entitle the generator to a price adjustment or compensation under the FSA's sampling and testing protocol.

References & Further Reading

This article references the following statutory provisions. Readers should always verify current rules, fees and timelines against the applicable statute and rules as amended, since these are revised from time to time.

  1. Fuel Supply Agreement model terms as adopted by public sector coal companies for domestic linkage coal.
  2. Coal Mines (Special Provisions) Act, 2015, for captive and allocated coal block frameworks.
  3. Ministry of Coal guidelines on coal quality sampling and third-party sampling protocols.
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