Coal comfort

In its second term at the Centre, the Congress-led UPA has shown unusual urgency in taking certain decisions — which have ultimately harmed national interest. The latest of the lot is the move to appoint a coal regulator through an executive order, bypassing Parliament.

The need for a coal regulator was first emphasised in the report of an expert panel on coal sector reforms chaired by TL Sankar in 2005.

The committee validated the move to distribute coal assets to captive miners, but “in a transparent and effective manner”, and recommended a set of reforms in coal distribution and pricing of domestic coal.

The aim was to “increase competition in coal mining”, without amending the politically sensitive Coal Mines Nationalisation Act.

The panel felt that encouraging power producers and States to take up mining seriously would solve the supply conundrum and reduce dependence on the national miner, Coal India Ltd (CIL).

Having envisaged multiple players in action, the committee aimed at achieving the dual objective of creating an open market for coal as well as ensuring supplies to the power sector (which consumes 80 per cent of the supply) at “cost-to-produce” prices.

And, that required a regulator which would limit CIL’s profit opportunities from the electricity generation business.

The government implemented the recommendations in patches — creating fresh problems. The allocation of captive blocks was far from “transparent”.

The entire process proved a flop, adding barely 15 million tonnes of production in a decade.

The CIL board was indirectly forced to offer cheap fuel to the power sector, but it was restricted from offloading 30 per cent of its production in the open market, as suggested by the Sankar panel, to recover the opportunity cost.

The report also called for meticulous planning in allotting coal to the power sector. But the government did the opposite. It assured the sector more coal than CIL could produce in the next 15 years.

The net result is, India today stares at a far wider demand supply gap than envisaged. CIL’s profits are falling, as its incremental production is diverted to the power sector which fetches lower returns. And it is no position to meet its committed supplies.

Clearly, there is little case for appointing a coal regulator at this juncture — a regulator who would ‘advise’ the coal ministry on determining price, set procedures for coal sampling, adjudicate upon disputes “and discharge other functions as the Central Government may entrust to it”.

The creation of a mere committee under the coal ministry could have served these purposes. Moreover, excluding the pricing issue, the country already has a regulator — the Controller of Coal — for either laying down the principles for sampling of coal or act as “the appellate authority in case of dispute” between consumers and miner on quality of coal.

The government’s move to force CIL to supply coal at pre-determined rates to the power sector have already been challenged in court by an institutional investor, The Children’s Investment Fund (TCI) of UK.

TCI feels the government duped CIL investors by reiterating the price deregulation clauses during the company’s IPO in 2010. The creation of a new ‘regulator’ may help dodge investor wrath.

By creating another regulatory body, the UPA may have won brownie points with investors, but has also made the job of the next government more difficult.