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CIL penalty brings focus back on coal regulator

Doubts rising over CIL’s capacity to meet growing demand gap
The recent imposition of Rs 1,773 crore penalty on Coal India (CIL) by the competition commission of India (CCI) has bought the focus back on setting up a regulator for the coal sector on priority basis. The sector that is facing surfeit of issues including the inability to meet the growing demand is also leading to compromises wherever accountability can be evaded, according to industry experts.

Dipesh Dipu, a professor of energy and mining at Administrative Staff College, Hyderabad, says, “The demand and supply gap for thermal coal has been rising and questions have been raised about CIL’s capacity to meet the demand as the peak shortage has risen to more than 200 million tonne. This has translated into production pressures at coalmine level leading to compromises wherever the accountability can be evaded with weak system for checks and balances. It urgently calls for a central regulatory mechanism to address market excesses.”

This viewpoint has been seconded by company officials as well from NTPC, Mahagenco and Gujarat State Electricity Corporation, who believe a regulator is the need of hour and it can be executed better if monopoly related issues are addressed. Opening up the sector to competition from both public and private sectors should be taken up immediately to tackle the demand supply imbalance.

A senior NTPC official who has also approached CCI on discrepancy of coal supply issue believes, “Having a regulator is a must but that would work only if there are many more players in mine production, both public and private, of good credentials which would give people more options and not be driven by the whims of one player.”

The monopoly also restricts supply substitution where private players cannot provide any horizontal challenge or competitive pressure to a company like CIL due to the entry barrier imposed by the policy measures of the government and the Coal Mines (Nationalisation) Act, 1973.

Maharashtra Generation Company (Mahagenco) that filed two petitions against the bad quality coal received by CIL at its generation plants for the past two years and which led to penalising of CIL, states, the directorate general (DG) was of the view that CIL and its subsidiaries enjoy a dominant position in the relevant market and the company is vested with absolute monopoly in production and distribution of coking and non-coking coal besides having a monopolistic control on of the terms and conditions of fuel supply agreement.

The DG concluded that CIL and its subsidiaries had violated the provisions of the act by imposing unfair or discriminatory conditions in the relevant market. CIL has been penalised around Rs 1,773 crore or 3 per cent of the average turnover of CIL for the past three years.

Experts say the dilution of coal quality happens due to technological challenges as well as where Vitrinites and inertinites in coal molecular structure of the Indian coal due to drift origins cannot be helped. “However, use of surface mining technologies with limited capacities to segregate waste bands may results into avoidable compromises in quality. It may be agreed that technology and management may have a limitation owing to complex geology of Indian coalfields there must not be any tolerance of quality compromises due to production pressures,” said professor Dipu.

The role of coal regulator in the transition state from monopoly to free markets can never be overemphasised. It should facilitate removal of entry barriers, inflow of capital and investments, creation of commercially prudent trade arrangements and a check on exercise of market powers by the existing players, the experts believe.

Source: www.mydigitalfc.com