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The recent decision of the government to constitute an independent coal regulator is a vital step for the much-needed overhaul of the coal sector, India Ratings said in a survey.
“It (coal regulatory authority) can potentially bring considerable relief to industries which depend on coal as a critical input, most notably the beleaguered power sector,” the ratings agency said in statement.
Notwithstanding the reportedly large coal reserves in India, the sector is characterised by acute shortages, poor quality, inefficient mining practices and distorted pricing mechanisms, it said.
“These factors have had a crippling effect on power generation, a vital component of scaling up the country’s undernourished infrastructure sector. Many of these issues have been ascribed to the virtual monopoly enjoyed by the state-owned Coal India,” the agency said.
It, however, pointed out that though decision is a positive step towards the sector’s development and is expected to determine the principles on the basis of which producers can price coal, it is yet unclear if price setting would also be included within the ambit of the proposed regulator.
India Ratings expects the regulator to establish yardsticks to determine quality or grades of coal supplies, ensure adherence to supply contracts, adjudicate on disputes between suppliers and consumers and oversee the progress of mining rights and licenses granted to private companies.
Allocation of fresh coal mines will, however, continue to be the prerogative of the government, it said.
“Although the announcement has brought in considerable optimism, India Ratings believes the mere constitution of a regulator in itself cannot act as a panacea for all the problems facing the sector,” it said.
The ratings agency further said the mandate given to the regulator and the resources provided to it for effective discharge of its duties in an independent and transparent manner, free from political interference, would be vital to realise the government’s objectives.
Concurrently, other reform measures such as restructuring Coal India and significantly expanding private sector’s participation in coal mining would also need immediate attention, it added.
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