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Rediff.com  » Business » It's time to end Coal India's monopoly

It's time to end Coal India's monopoly

December 12, 2013 14:07 IST

The Competition Commission of India (CCI) is to be congratulated for imposing a large fine, of nearly Rs 1,800 crore (Rs 18 billion), on Coal India Ltd for alleged abuse of its monopolistic position.

Coal India has said that it will move the appellate tribunal against the order and, if need be, take the matter up with the Supreme Court.

Whatever the final outcome, the CCI’s order will hopefully force the government to make a beginning in sorting out the mess in the coal sector, which affects not just the country’s energy scenario but also the current account deficit through the need to import coal for power generation.

The Maharashtra State Power Generation Company (Mahagenco), whose petition resulted in the order, argued that it was forced to sign a flawed fuel supply agreement with Coal India under which it had no recourse against the supply of poor-quality coal.

This issue has also affected the largest power generator in the country, NTPC, which has long publicly protested over the matter. 

The root cause of the present situation is the public sector’s monopoly in the mining of coal for merchant sale. (Private mining is allowed only for captive or own consumption.) Coal India stands at the heart of this arrangement, accounting for 80 per cent of the coal produced in India.

It is widely seen as an inefficiently run operation, with coal pilferage being rampant; its hefty profits are the result of its monopoly position. It is essential to allow the free market access to mining and sale of coal.

Such an action will be neither new nor earth-shaking; the equivalent has been allowed in the commercial banking, insurance, civil aviation and telecommunications sectors. Once this happens, mining rights can be transparently auctioned through public bidding.

Had this been done earlier, the United Progressive Alliance government would not have been at the receiving end of the Comptroller and Auditor General of India’s reports and acquired a reputation for corruption, which is now taking its toll on the UPA’s electoral prospects. 

It is not just the Centre and Coal India that are at fault. The state governments also have a say in the awarding of mining licences and have, therefore, gone along with the present system.

The marketing of merchant sale of coal is severely circumscribed by controls so that Coal India sells its output at a discount to global prices for comparable grades. Even Mahagenco, which is owned by the Maharashtra government, is not permitted to sell power at market prices.

So controls have to be systematically and gradually removed across the energy sector, which should ensure that serious disruptions do not occur during the transition.

To do this, it is vitally important to have an independent and powerful regulator for the coal sector - and, what is more, to give it teeth. Environmental and consumer interests will then be better protected and, hopefully, the inefficiency of India’s coal sector will end.

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