After taking on corporates in the cement and real estate sectors, the Competition Commission of India has turned the heat on world’s largest coal miner Coal India Ltd (CIL). The anti-competition watchdog has started issuing notices to CIL subsidiaries in two separate cases for discriminating in fuel supply agreements and abuse of dominance. The probe is expected to be over by March.
“The cases are currently being probed by the Director General (DG) investigation. The Commission expects the enquiry to complete in around two months,” a senior official from CCI told Business Standard. The DG carries out investigations into complaints referred by the CCI. The fair-trade regulator refers issues for probe only if it finds a prima facie case.
The first case relates to a complaint by Maharashtra State Power Generation Company (Mahagenco) against CIL and its subsidiaries, Mahanadi Coalfields (MCL) and Western Coalfields (WCL), for alleged abuse of their dominant market positions. Mahagenco has alleged that the miner has been supplying low quality coal at higher prices and putting in place non-transparent contract conditions regarding quality and other parameters for supply.
The second allegation is made by the power industry lobby alleging discrimination in favor of public sector companies in the reworked format of fuel supply agreements (FSAs). The allegations are focused around several issues including CIL’s unilateral right to terminate supplies, security deposit and the mechanism for settlement of disputes between the supplier and the buyer.
Industry body Association of Power producers (APP) has taken up the matter with CCI as part of its comments on the ongoing investigation by the Competition Commission in the first case. APP has also written separately to the coal and power ministers questioning the basis of having different FSAs for independent power producers (IPPs) and public sector companies. "Before 2009, the FSA for public and private sector generating stations were the same. Introducing the concept of differential FSAs now is contrary to the principles of natural justice and equality of treatment. This would not stand scrutiny of law," Ashok Khurana, APP Director General.
Coal mining is an exclusive domain of the Coal India with the company accounting for 82 per cent of the domestic 530 million tonne (MT) of production annually. The miner's monopoly status has not deterred the watchdog from conducting a fair investigation. "The whole coal sector is state-controlled. The state has a monopoly. We will be looking at those cases where parties have made out a case of abuse of dominance in terms of the fuel supply agreement, which are one sided and they are not getting any relief and they have nowhere else to go to," CCI chairman Ashok Chawla told Business Standard in a recent interview.
There are other sectors, such as oil and gas, where state monopoly exists. However, it is at the discretion of the government whether it wants to exempt a sector from the purview of the Competition Act. "Our policy is in a state of neutral and there are no provisions for state monopolies to be protected. However, there is a provision in the Competition Act through which it can exempt a class of people or group from the provision," said KKS Law Offices Founder Kaushal Kumar Sharma, who is also former Director General and Head of merger control at CCI.
APP has alleged that in the FSA format with IPPs, Coal India enjoys unilateral right to terminate supplies in the event of non-consensus during a review after five years of supply. The same clause in the FSA with public firms provides for referring the matter to the government. APP also says the provision on a security deposit has been loaded against IPPs in the new FSAs. While IPPs are required to file fresh security deposits, public sector firms can adjust the already deposited commitment guarantees against security deposits.
A top Coal India executive expressed surprise at the Mahagenco’s complaint. “I do not understand why such a dispute over quality of coal delivered should arise. We have a joint sampling provision in-built in the contract,” he said. Under the provision, three samples of the coal quality to be delivered are prepared. This includes a referral sample apart from two other samples by the buyer and the seller. In case of a dispute over quality, the referral sample is sent for third-party testing.