The Hindu Business Line : Why coal needed a regulator

For price regulation, creation of coal regulatory mechanism may be essential in the transition phase of the market till the market forces take shape, says Mr Dipuof PwC.

D. Murali

Chennai, March 3 This year’s Budget proposes to institutionalise coal regulatory mechanism, which is a welcome step, says Mr Dipesh Dipu, Principal Consultant, PricewaterhouseCoopers.

“The debate on coal regulator has been continuing since long, which primarily focuses on the roles the regulator has to play in the industry,” he adds.

There exists a case for regulation of coal block allocation process, which needs to be made more objective and transparent, reasons Mr Dipu, in an e-mail exchange with Business Line, post-Budget.

“The coal regulator may also take on industry regulatory responsibilities that the Ministry of Coal may want to dispense with to an independent agency,” he suggests.

The key development in the mining sector is the proposal to set up a coal regulator, agrees Mr Kuljit Singh, Partner, Ernst & Young. However, for this proposal to be effective, three issues will need to be clarified, he says. One, the extent of regulatory oversight on Coal India and other private companies; for instance, will the regulator determine the pricing of coal of such players, asks Mr Singh?

“Two, the extent of regulator’s control on the process used for coal block and coal linkage allocation; and three, the interface between coal and other industries which are dependent on coal. What will be the extent of co-ordination between coal and power regulators?”

Coal suppliers and consumers have been at loggerheads on the issue of whether there should be regulatory mechanism for pricing of coal, explains Mr Dipu.

“The current market structure for coal has been skewed: 94 per cent of production comes from Government-owned companies, and private-sector participation is limited to captive mining.”

Distribution of coal being done through rationing, there is shortage in supply; and, over time, the shortage is likely to become severe – all of which have resulted in distortions. For price regulation, creation of coal regulatory mechanism may be essential in the transition phase of the market till the market forces take shape, he opines.

“However, such regulatory mechanism may be essential only for regulated consumer businesses like power generation. The newly formulated coal distribution policy too supports the idea of CIL charging import-parity prices to unregulated consumers.”

Mr Singh too draws a ‘power’ parallel, thus. “Just as for the power sector the Finance Minister announced five new UMPPs (Ultra Mega Power Projects), it would have been helpful if the Budget had set some targets for coal blocks to be bid out to the private sector in financial year 2009.”

The Budget has not made any proposal for the enhancement of private sector participation in the sector, frets Mr Dipu. “The coal sector needs to open up for private investments to be able to meet the forecast demand of 2.34 billion tonnes in 2031-32,” he reminds.

“However, to be fair, there are hardly any administrative alternatives with the Government,” he concludes.

“The Coal Mines Nationalisation Amendment Bill, 2000 has been pending with the legislature, which when enacted can herald a new era in the sector. However, till then it is stoic silence on this front.”

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