Monopoly at what cost?

The minister of coal has recently asserted that Coal India Ltd would definitely continue as a monopoly and that he is not keen to bring the private sector into coal mining. He has also hinted that there is no proposal for restructuring the sector, thus, shutting out any debate on reforms in the coal sector.

The economic reforms started in India in the early '90s. In the coal sector also, several studies were commissioned to chart the future path of reforms. The earliest among them was the Integrated Fuel Policy Committee of the Planning Commission in May 1996, headed by ex-coal secretary, KSR Chari, followed by Teri's IMC Review of Regulatory Framework in Coal Industry in April 2000. Soon after, the finance ministry-sponsored Expenditure Reforms Commission, popularly known as Geethakrishnan Commission, submitted its report in September 2001. At the time, there was no competition to CIL or even its subsidiaries.

Restructuring of coal sector and allowing subsidiaries of CIL to compete with each other to allow competition pending private ventures were suggested by these committees, indicating that CIL had lost its relevance and should be wound up. CIL does not produce any coal but does centralised procurement of heavy machinery for the subsidiaries. According to the ministry of coal, CIL is the apex body in the coal industry for laying down policy guidelines, financial budgeting, manpower planning and co-coordination with its subsidiaries.

Other recommendations included removing the control on pricing and distribution, cutting down overheads, reducing manpower, increasing sector efficiency and allowing a level-playing field for all through transparent, equitable and hassle-free framework to facilitate private investment.

However, ignoring the suggestions of structural changes, the Colliery Control Order 1945 was replaced by Colliery Control Order 2001, removing control on the price and distribution of coal only, rest of the controls on coal production, mine opening and closing, sale and stocking and quality check were retained. Coal continued to be listed as an Essential Commodity. In a case of absolute monopoly and in a situation of serious shortages, the obvious result of decontrol was a sharp increase in coal prices, making CIL a cash-rich company without improving efficiency or cutting overheads. With the controls on distribution gone, the coal linkage regime was abandoned and a new fuel supply agreement (FSA) was introduced, despite resistance from consumers.

In March, 2005, the ministry of coal produced a policy direction for the sector, Coal Vision 2025. This was completely CIL-centric and it conveniently forgot to even mention the need for reforms. However, this was followed by the Expert Committee on Integrated Energy Policy constituted by the Planning Commission (Kirit Parikh committee Dec '05).

The committee was highly critical of the way CIL was being operated with very low efficiency/OMS (output per man-shift). It highlighted the lack of competition in the sector. The objective of nationalisation–the need for scientific and planned development of resources and improvement in the working condition of mines–has not been realised completely, the Kirit Parikh report said.

The committee suggested restructuring of CIL by allowing profitable subsidiaries of CIL to compete with each other, pending private participation. It also proposed that the CIL take the responsibility of reviving the loss-making companies. It further noted that CIL has become profitable because of the increase in coal prices and increased output from shallow opencast mines, and not due to any increase in efficiency.

CIL's production is stagnating for the last two years and this year it may show a negative growth. But it continues to report profits. The government has permitted CIL to unilaterally shift the coal pricing from useful heat value (UHV) to gross calorific value (GCV) system from the next calendar year. This is going to increase the coa l price manifold, thus propping up CIL's share in the capital market.

Coal shortage has been endemic in India since nationalisation, partly because of faulty assessments of demand. As a government monopoly, CIL was allowed to set its own target of production. Maintaining the monopoly of CIL would virtually mean shunning the reform agenda of the sector to the detriment of the power sector and putting into jeopardy the power ministry's plan for building more coal-based generation capacities during the 12th Plan. At the end of the day, the common man will continue to pay for the inefficiency of a government monopoly.

Tags: integerated fuel policy, Geethakrishnan Commission, coal mining