CIL takes on power producers, denies violating competition law

Coal India Limited (CIL) has strongly defended its position on the allegation of ?abuse of dominance? levelled by Maharshtra State Power Generation Company (Mahagenco) and the Association of Power Producers (APP) among others before the Competition Commission of India (CCI). CIL said it will take legal recourse if the fair trade regulator passes an unfavourable verdict.

This happened after sources in the CCI said that the Director General of Investigation (DGI), the investigative arm of the CCI, found evidence of ?abuse of dominance? by the CIL and its subsidiaries ? Mahanadi Coalfields and Western Coalfields ? over allegations of supply of low-quality coal at higher prices and non-transparent contract conditions on quality and other supply parameters. The CCI, however, is yet to come out with an official order in the matter. The fair trade regulator is expected to firm up its mind within this month, a source in CCI told FE.

Coal mining is an exclusive domain of CIL, with the company accounting for 82% of the domestic 530 million tonne of annual production.

When contacted, S Narsing Rao, chairman and MD of Coal India, said the charge of supplying poor quality of coal by CIL and its subsidiaries is “totally baseless” and holds no ground. “There is a provision of joint sampling of coal by the seller and buyer in the fuel supply agreement (FSA). If users do not invoke this clause often, it means they are more or less satisfied on the quality front. We not only get the samples tested by an independent agency in case of inconsistencies in the analysis done by both parties, but we are also now planning to get the samples verified by a third party agreed upon by CIL and coal users.”

CIL also told the DGI during the hearings that there was no dispute over quality of coal delivered as there is a joint sampling provision in-built in the contract, which allows for third-party testing of coal samples in case of dispute.

The DGI started investigating the matter in March last year under the provisions of Section 4 dealing with abuse of dominance. If CCI finally concludes violation of Section 4, it can impose a penalty of up to 10% of the average annual turnover of the companies for last three years. This is significant as the CCI has maintained that state monopolies are within the purview of the competition laws. As per norms, the CCI will take a final view in the matter after giving opportunity to all parties involved and named in the DGI report. “A final order in any CCI matter comes only after hearing all parties. There are instances in the past where the CCI has made up its mind contrary to the DGI findings,” said a senior lawyer who deals with competition laws.

On the issue of coal supplies, Rao said CIL has met 90% of coal needs of companies as per the terms of FSAs (both old and new) up to February. “There could be need to import coal and meet the demand for next fiscal. Several PSUs and state agencies, including Mahagenco, have also been allocated coal blocks. There is a need to bring all these blocks under production without any further delays.” he added.??

A senior CIL official said coal supplies to utilities were being done as per conditions of the agreement in which both parties ? suppliers and buyer ? are a signatory. ?Before pointing fingers on CIL, power companies should look at their own rack record where they are not sticking to various milestones on project development agreed by them. Quality of coal supply is as per term of the agreement and there is a system of joint verification of coal samples,? the official said.

?During the DGI hearings, the officials of Mahanadi Coalfields also maintained that the complaint did not have any merit and they were giving coal as per fuel supply agreement.

However, the other complainant and a party to the case, the Association of Power Producers (APP) has questioned the basis of having different fuel-supply agreements for independent power producers (IPPs) and public sector companies.

Also, APP has voiced protests against CIL?s unilateral right to terminate supplies, seeking security deposits and the mechanism for settlement of disputes between the supplier and the buyer. ?We are yet to receive any intimation from the commission that its investigation is complete. We only hope the regulator understands our plea that CIL and its subsidiaries are misusing their monopoly position,? Ashok Khurana, director-general, Association of Power Producers told FE.

During the DGI hearings, APP alleged that in the FSA format with IPPs Coal India enjoys unilateral right to terminate supplies in the event of non-consensus during a review after five years of supply. The same clause in the FSA with public firms provides for referring the matter to the government. APP also says the provision on a security deposit has been loaded against IPPs in the new FSAs. While IPPs are required to file fresh security deposits, public sector firms can adjust the already deposited commitment guarantees against security deposits, it said. APP, in its submissions to the CCI, has pointed to a 29% increase in the average prices of e-auctions of coal as mandated by the New Coal Distribution Policy of 2007. ?Over the last three years, the average e-auction prices have grown at a very high CAGR of 28.9 %. Hence, CIL has been offering more and more coal through e-auction every year at prices which have been consistently increasing, leading to higher revenues even as it has failed to meet its contractual commitments under the Fuel Supply Agreements (FSAs) entered into with its consumers,? Khurana said.

A coal ministry official said that the fuel supply agreement binds both the parties to various levels of commitment including amount and quality of coal supplies. “Price and quality of coal is also mentioned in the agreement so there should not be any problem on this count to any of the parties. Still, if a case is being made against the PSUs, we will take all possible legal recourse.” the official said. An adverse verdict means that the matter could be taken up at the tribunal next. CIL has already replied to a detailed questionnaire sent by CCI where it has strongly defended its position.