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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