Coal Regulatory Authority Bill tabled

The 2013 Coal Regulatory Authority (CRA) Bill, which seeks to set up an independent coal regulator, was tabled during the recently concluded Winter Session of Parliament. This setback comes at a critical time for the sector, which is plagued with shortfalls in production and allegations of irregularities in the allocation of coal resources.

The Coal Sector in India

Global coal resources have been estimated at over 861 billion tons. At 286 billion tons, India boasts of the world’s fifth-largest reserves. Despite this large reserve, India, which is the world’s third largest consumer of coal, is increasingly reliant on coal imports to make up for the poor quality of domestic coal and supply-side bottlenecks. Moreover, domestic production of coal has failed to keep pace with rising consumption in key sectors. The power sector is the largest consumer of coal in India, with the fuel meeting over 50 percent of India’s energy needs. Iron, steel and cement are other bulk coal-consuming industries.

Currently, the government is a monopoly producer of coal, with over 80 percent of production coming from state-owned Coal India Limited. In addition, a small percentage of coal production is carried out in privately-owned captive mines. Captive mines allow private iron and steel companies and power producers to independently develop coal blocks allocated to them. However, the allocation process has recently been the source of controversy.

The Coalgate Scandal

Since India first introduced a policy permitting captive mining in 1993, 216 coal blocks with coal reserves in excess of 50 billion metric tons have been allocated to public- and private-sector entities for captive mining. However, the government has come under sharp criticism for not following a process of competitive bidding, instead allocating huge reserves of coal at throw-away prices. The Comptroller and Auditor General (CAG), India’s constitutional audit authority, estimated in 2012 a $34 billion presumptive loss to the exchequer on account of allotment of 57 coal blocks without competitive bidding.

The controversy, popularly dubbed the ‘Coalgate’ scandal, caused an uproar in Parliament this fall. Law Minister Ashwani Kumar was forced to resign for his alleged involvement. The opposition also called for the resignation of Prime Minister Manmohan Singh and cast blame on industrialist Kumar Mangalam Birla, chairman of the Aditya Birla Group, though both denied any wrong-doing.

The Coal Regulatory Authority Bill, 2013

In this context, the CRA Bill endeavors to develop regulation for the effective monitoring of the sector. The proposed independent regulatory authority, developed along the lines recommended by the Planning Commission’s Working Group on Coal, is intended to help with the regulation and conservation of coal resources and ensure transparency in pricing and quality control. Additionally, it will help moderate the virtual monopoly of CIL, benefitting stakeholders including coal bearing states and coal consuming industries such as power, steel, and cement.

Key Functions of the Coal Regulatory Authority

  • Pricing:
    • The regulator will ensure transparency in the process of pricing coal undertaken by the monopoly coal producer.
    • Although the proposed regulator will not have the power to set prices, it will have the mandate to develop rules and methodologies for determining the price.
  • Grading/ testing:
    • The regulator will have the power to draft rules and methodologies for sampling coal quality, and will specify methods of testing for assigning grades.
  • Dispute resolution:
    • The regulator will help address complaints from producers and consumers.
    • Any consumer with grievances related to grading, quality, testing, pricing, supply and sampling of coal may apply to the regulator for adjudication.
    • Orders passed by the regulator may be appealed to the Appellate Tribunal. The Bill provides that the Appellate Tribunal for Electricity, already established under the Electricity Act, 2003, shall act as Appellate Tribunal for appeals against the decisions of the Coal Regulatory Authority, by adding one more Technical Member (Coal) to the Appellate Tribunal.

The regulator will not have the authority to allocate blocks or determine prices for dry fuel, though it can advise the Central Government on both matters. The Coal India Ltd. (CIL) will continue to decide the price of coal.

The Bill also provides for creation of a Fund called the 'Coal Regulatory Authority Fund', and all grants, fee and charges received by the Authority shall be credited to this fund. Initial funding for the regulator will be provided by the government after passing the CRA Bill in Parliament.

 Industry reactions

Analysts see the CRA Bill as crucial to positioning India as a long-term player in the international market as well as in providing a level-playing field when the sector is opened up to private participation. The Bill will also come as a relief to bulk consumers of coal (particularly the power sector), which have been long demanding a coal regulatory body. The Bill is also expected to boost investor confidence in power, steel and cement industries as well as the coal sector itself. Indeed, in reaction to the Cabinet’s decision in June 2013 to constitute a regulatory authority, stock prices of Coal India Limited picked up marginally.

Future of the CRA Bill

The Bill is part of a flurry of reform measures to revive the sputtering Indian economy. It is also a way for the Congress-led coalition government to resurrect its image, which was tarnished by the high-profile Coalgate scandal. Both factors mean that the government is highly motivated to pass the Bill. However, with only one session of the Parliament left ahead of elections to be held in mid-2014, the window to pass new legislation is narrow. Another possibility is for the government to set up a non-statutory regulator through an appropriate executive order. If the Bill is tabled again, that government may take this approach to establish the much-needed regulator.