Empower the coal regulator

Sep 05 2014, 01:36 IST
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SummaryMore than 75% of domestic coal production is in the hands of CIL.

With the Modi-led government willing to cancel all but 46 coal block mines if directed by the Supreme Court, a strong coal regulator to oversee the coal mining sector—which has been plagued by many issues, including falling domestic production, increase in imports, opaque pricing, and irregularities in allotment of blocks—needs to be set up.

Though the UPA government in February hurriedly tried to put in place through an executive order creating a non-statutory coal regulator, it failed to deliver on its promise to usher in a transparent and efficient regulatory regime.

Appointed through an executive order, the authority has only administrative powers. It lacks legislative teeth and its word is considered merely advisory, implying a total dilution of the concept of independent statutory regulation.

While the coal regulator can decide on the method of determining the price, it has no authority to fix a price or authorise starting of approved mines. State-owned Coal India Ltd (CIL) will still continue to fix the price, subject to the government’s approval.

More than 75% of domestic coal production is in the hands of CIL. Notwithstanding the large coal reserves, of about 280 billion tonnes, in India, domestic production has failed to keep pace with the demand from utilities, leading to severe power shortages that cripple the economic growth.

“Inefficient mining practices and distorted pricing mechanisms have added to the sector’s woes. Many of these issues have been attributed to the virtual monopoly over coal suplies enjoyed by CIL. There is neither any transparency nor any foolproof guarantee that consumers’ interests will be taken care of,” says DL Chidanand, a prominent legal expert.

Expensive imports of good quality coal drain India’s foreign exchange reserves. This wasteful expenditure can be avoided if private companies are given a level playing field and allowed to compete with CIL, which is inefficient, says lawyer Anuradha Dutt, partner, DMD Advocates.

To sum up, statutory powers for a regulator could go a long way in cleaning up the mess—the government could consider enhancing the powers of the existing regulator.

According to Supreme Court lawyer Mahesh Agarwal, transparency, efficiency and much-needed checks and balances in the process of determining the sale of a scarce national resource will revive the corporate investment and fuel economic growth. This will definitely make the sector competitive and increase private participation.

For effective discharge of its duties, the coal regulator needs to work in an independent and transparent manner and be free from political interference.

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