Rule-based regulation becomes necessary when there are natural monopolies, or when markets fail to deliver efficient pricing for consumers, or when there are externalities like threats to the environment. Considering that India’s coal and natural gas
reserves are limited, their markets are riddled with imperfections and that their extraction and end-uses involve threats to the environment, their extraction, end-use and pricing need to be regulated.
More than 90 per cent of domestic coal production is in the hands of Coal India Limited and Singareni Collieries Company Limited, both PSUs. During 2012-13, imports were 138 million metric tonnes (MMT). Considering that there are limitations on how much coal can be imported, the two PSUs will have a monopolistic control over coal supplies for years to come.
Coal pricing was administered by the government under Collieries Control Order (CCO), 1945, till that order was amended in 2000 and the PSUs were given the freedom to fix prices on a normative basis. This brought no change in the PSUs’ monopoly over coal pricing. Nor did it resolve the consumers’ concerns about the quality of coal supplied. Persistent pressure from power utilities and recent public outrage at the coal allocation controversy prompted the ministry of coal to belatedly introduce the Coal Regulatory Authority of India (CRAI) Bill in the Lok Sabha, in December 2013. The coal regulator received the cabinet’s nod late last month.
The CRAI bill is a half-hearted measure, as it would not empower the regulator to determine the grade-wise price of coal or enable it to enforce that contracts for captive coal blocks be auctioned — two crucial areas of major concern for consumers. The CRAI’s role, on the other hand, would be limited to coal conservation, enforcement of mine development plans, coal sampling and testing, suggesting principles of pricing, norms of operational efficiency and resolution of disputes between producers and consumers. In the allotment or de-allotment of captive coal blocks, the CRAI would merely advise, not enforce. Its composition and the method of selecting its members are similar to the provisions in the case of other regulatory authorities, leaving scope for the government to use the CRAI as a parking place for retiring civil servants, thereby eroding its autonomy.
Not quite confident of piloting the bill through the usual legislative process, the government has now set up a toothless regulator through an executive order. This implies a total dilution of the concept of independent statutory regulation — a long overdue reform — and would simply create yet another layer of red tapism and infructuous public expenditure arising from it!
We need independent, umbrella regulation for pricing not only electricity but also the two fuels, coal and natural gas, as well as nuclear power, with a single authority to hear appeals against its orders. continued…