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CCI’s Rs 1,773-crore penalty: Coal India should pay fine, say experts

Coal India should pay the Rs 1,773 crore fine imposed on it by the competition watchdog instead of appealing against the order as it is simply a case of public money going from one pocket of the government to another, say experts. The refusal to contest the penalty will also have the added benefit of establishing the credibility of the regulator.

The Competition Commission of India (CCI) on Monday imposed a Rs 1,773 crore fine on Coal India, the country' monopoly commercial coal miner, based on a complaint filed by two power companies that India's monopoly producer of coal abused its dominance.

The fine, according to law, will have to be deposited in the consolidated fund of India and accrue to the government.

The government owns 90% stake in Coal India, and has traditionally drawn hefty dividend income from the cash rich coal company. In 2012-13, the company paid a total dividend of Rs 8,843 crore fine could possibly mean less profits for the company and less dividend income for its owners.

But as the main owner, the government, will pocket this amount in the form of a fine, it will not be poorer in any way. Coal India paid a dividend distribution tax of Rs 1,323 crore to the government in 2012-13.

While a reduction in dividend income will result in a corresponding decrease in tax, here too, it will again not make any difference to the government's coffers because the penalty amount will flow directly to it.

Kameswara Rao, Leader, Energy at PwC India cited another reason for Coal India complying with the CCI ruling.

"It is in the best interest of Coal India to abide by the orders of CCI..be it modifying the FSAs or change the sampling and quality of coal," he said, adding that if the company does not do so it might have to at a later stage incur a higher penalty than the 3% turnover fine it has been asked to pay right now.

Experts also say that if Coal India accepts the fine, it would enhance the credibility of the Competition Commission, and lift its profile, giving this relatively new body more authority to carry out its task.

"The credibility of the Commission would be established if there are corrective steps that are taken by Coal India on issues directed by CCI," says Vinod Dhall, the former head of the commission.

Minority shareholders of course stand to lose from a lower dividend outgo, but as they own only 10% of the company, their loss won't be that significant.

Coal India's shares closed 1.26% up on the NSE at Rs 289.45 on Wednesday. Coal India had cash and bank balances of Rs 62,236 crore at the end of 2012-13, and the government has been toying with the idea of tapping this cash by selling its shares back to the company in a share buyback programme of the coal producer.

Source: The Economic Times