Coal regulator ambit widened

Proposed office to take a call on cost of surplus coal at captive mines and royalty rates to states

The government is set to bring surplus coal produced in private captive coal mines under the regulatory net.

The proposed coal regulatory authority, being set up to induce transparency in pricing and coal mining operations, will decide how to price coal produced in captive mines, too, apart from doing so for Coal India’s linkage.

After detailed discussions on the Coal Regulatory Authority Bill in the meetings of a nine-member ministerial panel headed by Finance Minister P Chidambaram, the coal ministry has inserted a separate clause in the draft legislation covering captive mines. Reliance Power had, over a year before, been allowed to use surplus coal from mines allotted for its Sasan ultra mega power project for its Chitrangi power plant (both in Singrauli district of Madhya Pradesh).

The new clause, when implemented, will bring into the regulator’s ambit a host of private companies, including Tata Power, Reliance Power and Jindal Steel & Power.

“The price of coal produced by captive mines will be decided on the basis of the principles and methodologies for price determination as specified by the regulator and will form the basis for determining the price of coal declared as surplus,” said a coal ministry official. He said the pricing of captive coal will also be used as a basis for calculation of royalty to state governments.

Under the current system, it is mandatory for private companies operating captive coal mines to share surplus production with the nearest Coal India subsidiary at a “transfer price” decided by the government.

The coal ministry had earlier proposed in its draft “surplus coal policy” that the captive miners should sell surplus output to CIL at a price lower than the cost of production or the notified price. That policy was abandoned later. Now the government is mulling allowing a reasonable incentive to captive miners for surplus coal sales, in view of the domestic shortage.

Also, captive coal mining companies currently pay royalty at a rate similar to the rate applicable to their nearest Coal India subsidiaries. This is because captive miners do not dispatch coal, the basis for royalty calculation.

With the regulator being set up, captive mining companies will be deprived of the benefit they currently enjoy as a result of delayed coal price revisions. Domestic coal prices have not been revised by CIL for two years.

The coal ministry has added what it calls a “saving clause” in the draft Bill, to empower the central government to direct the regulatory authority to determine the principles and methodologies for determination of the price of coal “in any other case”.

This, the ministry official explained, was done to give the centre “exceptional power”, keeping in mind contingencies or circumstances not anticipated today. This might include determining the rate price pooling of domestic and imported coal in case the proposal is finalised in the future.