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Editorial | April 2012

Coal regulator, a welcome proposal

Discounted pricing to benefit the public at large, much like suburban train tickets, is a form of subsidisation that Public Sector Units (PSUs) are used to. The delicate dilemma of being socially relevant and commercially viable has started as a humble debate, but is fast wedging out into a bigger issue. With the Navratna PSUs that have attained the public-issue nirvana, the complexity has begun in right earnest.

Coal prices are traditionally lower and more stable than those of oil and gas. However, the volatility in the Indian context is not in the price itself, but in the uncertainty in the policy and increasing regulation. While a coal regulator has been advocated widely, shareholders of Coal India are demanding to know why prices are so low—to the detriment of their business.

Recently, Coal India's fuel supply agreement (FSA) proposals have met with much opposition among its own shareholders. Coal India faced resistance from its independent directors in its 22 March board meeting to discuss the Prime Minister's Office directive to ink FSAs with an 80 per cent supply clause before end March for power plants commissioned up to the end of last year. The independent directors are shaking their heads at the clause that states that the PSU facing problems in enhancing coal production was not in a position to meet the commitment. In a move that will set to rest doubts about Coal India's corporate attitude, has subsequently rejected the PMO order to protect minority shareholder rights.

On another front, UK fund The Children's Investment Fund Management (TCI), the largest shareholder in Coal India outside the government, is suing the company for under-pricing coal. TCI says that while Coal India is selling under the FSAs to the power sector and the market price at $20, it is making a loss of $50 per tonne. While the power sector is set to profit from this, TCI says the public at large will be shortchanged in the process.

This, TCI says, is no less powerful a problem than the undervalued coal blocks, which, the Comptroller and Auditor General (CAG) is reported to have claimed, has caused a loss of more than Rs 10 lakh crore to the exchequer. The CAG's leaked draft estimates that the government's award of 155 coal blocks resulted in gains of Rs 10.7 lakh crore to various companies between 2004 and 2009. However, the gains are largely notional as many firms have not started production.

This is why the move from the coal ministry to hive off supervisory and pricing powers, albeit late and rather surprising in the sophistication of the idea, needs to be applauded and embraced. So, finally, we will have a coal regulator, if Coal Minister Sriprakash Jaiswal has his way. Among the recommendations are setting up a four-member regulatory panel that will be in charge of granting, revoking and monitoring coal mines, as well as of pricing. The impact of this decision for Coal India may be that it would have an answer to its shareholders on why coal must be sold at lower prices. The regulator would also have the authority then to abort unrealistic pricing such as that under the FSA as currently proposed.

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