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The Union cabinet gave its go-ahead for setting up an independent regulator for the coal sector in June. The announcement was supposed to be a big step forward, given that setting up a regulatory authority has been viewed as a key policy measure for coal sector reforms. Yet, the decision failed to garner enough attention. It is partly because the approval came a good eight years after the Integrated Energy Policy (IEP) first recommended it in 2006, and partly because the government had significantly watered down the major provisions. An analysis of the amendments made in the original scheme of the proposal explains why experts are now raising doubts over the efficacy of the government's move.
The original draft of the Coal Governance and Regulatory Authority (CGRA) Bill, finalised as early as 2009, was a perfect setting for true reforms of a sector mired in red tape and bureaucratic delays. It drew heavily from the recommendations made by the August 2006 IEP report, prepared by former Planning Commission Member Kirit Parikh, and the T L Shankar Committee report (on coal sector reforms) of October 2007.
The original idea was to set up a strong regulator with major powers. This included the power to fix prices (including spot market prices), grant mining permissions, specify standards of performance for miners and even monitor fund utilisation for coal conservation and development. However, the government, while approving the regulator Bill in its current form, chose to strike off all these provisions and significantly dilute the regulator's powers.
| KEY PROVISIONS OF THE BILL |
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Toning it down
The first thing to go out of the Bill was the price fixation function. The ministerial panel which finalised the Bill reasoned that independence of the board of Coal India, the country' sole coal producer, had to be kept in mind; assigning pricing power to a regulator in a sector where prices were de-controlled years ago would amount to taking a step back on the path to reforms; and finally, regulators in other similar sectors which are nationalised but dominated by monopoly players -Atomic Energy Regulatory Board and Airport Economic Regulatory Authority, among others - also do not enjoy pricing power. Secondly, the power to grant mining permissions was taken off the regulator's mandate because "the core functions of the ministry" had to be preserved. Under the current system, Kolkata-based Coal Controller's Organisation under the ministry grants mining authorisations.
Thirdly, the power to specify standards of performance and norms of operational efficiency had to be removed from the regulator's mandate as this function clashed with the office of the Director General of Mines Safety under the ministry of labour. Only those issues of operational efficiency which are beyond the powers of the Director General of Mines Safety have been assigned to the regulator now. The attempt at blunting the regulator's teeth did not end here. The Group of Ministers decided that the power to monitor the utilisation of funds for coal conservation and development should also remain with the ministry as it was an executive function of the ministry. In what would further restrict the regulator's reach, the government has added a new section that says the regulatory authority will have no jurisdiction relating to environment and forests. With the regulator having been stripped of these powers, the government has left a key question unanswered: what exactly will the regulatory authority do?
The Bill, in its current form, will allow the regulator to determine principles for price fixation and for granting mining permits, resolve grievances between consumers and producers, specify methods for testing of coal quality and enforce adherence to mining plan and mine closure plans. To be sure, all these functions are currently handled by various government departments including the ministry, the Coal Controller's Organisation, the state government and the Planning Commission. So, did the government really need to create a separate public office for these very functions?
A small step forward
Amrit Pandurangi, senior director at accounting and consultancy firm Deloitte, says setting up the regulator would help the sector, especially as the government itself has not done a good job till date, "though I am not sure if any significant efficiency gain will come by setting up the regulator, at least in the short run," he adds. He also says that by not letting the regulator deal with domestic pricing issues of Coal India, full advantage of an independent regulatory authority will not be achieved and, in fact, this may complicate the pricing scenario. But how justified are the fears of other government departments about overlapping jurisdiction with the regulator which have led to the dilution of its powers? "No overlap really exists. In all infrastructure sectors where independent regulators exist (electricity, ports, airports, etc.), we have found no evidence of any overlap on issues of environmental or labour regulation. Fears are, therefore, not real," he says.
Another mining and infrastructure expert, Dipesh Dipu, partner at Hyderabad-based resources-focused consultancy Jenisse Management Consultants, does not see any major gain accruing from the regulator's power to determine principles of price fixation. "The terms and conditions of pricing have at several times in the past been published by Coal India and it continues to state the prices which are typically reflective of the cost of mining. The regulator may refine these and may have some impact on prices offered but these would not result in incentivising efficiency of mining or market orientation of pricing," Dipu says. He, however, adds that the regulated nature of downstream sectors like power provides a justification for the regulator to decide on the methodology of pricing.
Experts say, in the end, there is no substitute for opening the market for greater participation and creating competition through many suppliers. This, however, requires legislative and statutory intervention and, hence, may take its own course. For instance, a draft legislation to open up the coal sector completely to private sector has been pending in Parliament since 2002. However, while that happens, a coal regulator may help by creating a framework of incentives and penalties for performance, efficiency and productivity improvement, resulting in fair pricing with its tighter norms governing performance. In the current scenario, owing to the absence of such norms, even the prospect of getting coal supplies appears to cheer the industry, Dipu says.
