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Rs 10 Lakh Crore ‘Coal-Gate’ Scam: PMO DENIAL, CCI TO INVESTIGATE, by Dr. P.K. Vasudeva, 26 Mar,2012 Print E-mail

Events & Issues

New Delhi, 26 March, 2012

Rs 10 Lakh Crore ‘Coal-Gate’ Scam

PMO DENIAL, CCI TO INVESTIGATE

By Dr PK Vasudeva

 

A media story quoting an alleged preliminary CAG report of a loss of Rs 10.7 lakh crores to the Government coffers by not auctioning coal blocks refuses to die down. Notwithstanding, the prompt denial by the Comptroller and Auditor General Vinod Rai in a letter to the Prime Minister and released by the PMO.

 

Today, the competition regulator, Competition Commission of India (CCI) plans to probe whether State-run coal miners have thwarted competition in the sector, robbing it of growth despite the country holding record reserves of the fuel.

 

Significantly, while domestic coal reserves rose 37 per cent in two years to 74 million tonne in 2011, this could not be matched with a faster pace of production. Whereby, coal production growth slowed to 0.19 per cent in 2011 from 7.9 per cent in 2010 thereby delaying industrial projects and causing rolling black-outs as coal-based power generators remained idle.

 

“Today 22,000 mw of power is lying idle due to coal shortage. The CCI will be looking into why the market is not being allowed to grow even after 20 years of liberalisation,” asserted a CCI official.

 

Pertinently, after the nationalisation of coal mines in 1973, the mining sector is nearly entirely in the hands of public sector companies, with Coal India controlling more than 80 per cent of production. But the miner has not been able to ramp up production despite availability of enough funds.

 

The regulator will be probing abuse of the dominant position by State-run monopoly, which has the backing of the Coal Ministry, under Sections 3 and 4 of the Competition Act, 2002. Although Coal Secretary Alok Perti stated: “Neither the State-run miners nor the Ministry have done anything illegal. We are not doing anything wrong. We are working under the purview of law,” he added for good measure.

 

Remember, the Coal Mines (Nationalisation) Act, 1973 does not permit commercial mining from captive blocks and has been awaiting amendments for more than a decade now. In fact, restrictive trade practices have effects not only on production but also on prices. The wholesale price index for coal increased by 13.25 per cent in the September 2011 compared to 7 per cent in 2010, resulting in the coal import bill also getting inflated due to inefficient tapping of mines.

 

According to Government data, the country imports more than 100 million tonne of coal every year. The CCI will also investigate if there were irregularities in the allocation of captive coal mining blocks. “Blocks have been allocated to some companies randomly. We are looking into the case with all seriousness, as it affects the critical power sector,” said another top CCI official.

 

The watchdog is also worried that the Ministry's policy proposal on surplus coal and washery products limits production of coal up to an approved level, which the industry says will compound the fuel scarcity problem. But, coal officials warn that since the proposal seeks to sell surplus production to Coal India Ltd (CIL) at below-production cost, the competition issue would only get aggravated, benefiting only the State monopolies.

 

In fact, Coal India whose net profit increased 68 per cent between 2006-07- 2010-11, is sitting on a record cash reserves of Rs 49,000 crore. The world's largest coal miner has a net worth of Rs 30,000 crore and a market capitalisation of Rs 200,000 crore. Interestingly, Coal India refused to comment on the matter. The CCI will soon refer all complaints against the Kolkata-based miner to the Director General of Investigations for a probe.  

 

The Prime Minister's Office (PMO) should be commended for its decisive intervention in getting CIL to sign firm fuel supply agreements (FSA) with all power plants that have entered into long-term deals with distribution utilities for selling power and are to be commissioned before 31 March, 2015. The CIL, which produces 80 per cent of India's coal, has in recent times only been issuing letters of assurance (LOA) that do not legally bind it to supply fuel once a project is up and running. The State-owned miner has not inked a single FSA since April 2009.

 

The PMO has now asked CIL to convert the preliminary LOAs into firm FSAs, committing it to supply at least 80 per cent of the full quantity of coal mentioned for a period of 20 years. In the event of shortfall, CIL would have to arrange for imports or supplies from other Government entities, failing which penalties would set in.

 

The PMO directive has acted as a regulator covering around 26,000 megawatt (MW) of LOA-based power plants commissioned between 2009-10-2011-12, plus an equivalent capacity slated to come up in the next three years. Given that a typical 1,000 MW thermal station burns 4 mt coal annually, it translates into a requirement of 200 mt or so.

 

The benefits of securing FSAs for these projects are obvious for a power-starved nation, even if CIL may have to be shaken out of its lethargy to ramp up production from both existing as well as new mines, especially those that have already received the necessary approvals. In the short-run, it may have to even reduce e-auction sales and divert supplies from non-power consumers including cement and steel.

 

However, the PMO actions can only be poor substitutes for more substantial reforms. Foremost among them is the long-delayed enactment of the Coal Mines (Nationalisation) Amendment Bill and setting up a Coal Governance and Regulation Authority which is pending since 2007 (TL Shankar Committee report).

 

Undeniably, unless commercial coal mining is thrown open to new players, India's reliance on imports, estimated at 100 mt-plus against domestic output of 550 mt this fiscal, will only grow. And this is simply not sustainable.

 

Also, Coal India's move to roll back the price rise effective from 1 January this year following opposition from coal consumers has triggered debate for the establishment of regulatory mechanism for this sector. Power generators and experts believe that a coal regulator was the need of the hour to bring about transparency in pricing.

 

“The issue of establishment of a coal regulator did come up for discussion during the meeting between the Prime Minister and the industry CEOs held on 18 January last. The Ministry strongly pitches for a regulatory mechanism for the coal sector to be put in place at the earliest."

 

All in all, it is a welcome sign that CCI is considering a suo moto investigation into whether the virtual monopoly of the State in the coal sector is responsible for the slowdown till such time a strong regulatory mechanism for the sector is put in place at the earliest. ---- INFA

 

(Copyright, India News and Feature Alliance)

 

 

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