Regulating coal PDF Print E-mail
Thursday, 09 May 2013 00:00
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Will be next to impossible with a monopoly supplier


The Group of Ministers’ (GoM) decision to not give the coal regulator pricing powers, needless to say, comes as a big disappointment and it is to be hoped that there will be a rethink when the matter goes to the Cabinet. One of the principal things a regulator does, in situations of natural monopolies, is to ensure customers don’t get taken for a ride—the clash between Coal India Limited and NTPC over dues of R2,800 crore was precisely on account of the latter alleging the monopoly producer of coal was selling it poor quality coal. Whether you look at the telecom regulator or the electricity regulators, their success or lack of it has very largely been determined by their powers to regulate pricing as well as to set norms for pricing—in the case of the Central Electricity Regulatory Commission (CERC), power tariffs collapsed when it laid down a rule that said incentives for producing extra power would not kick in at 68.5% PLF levels but at 80-85% PLF levels. The proposal right now is to give the coal regulator some powers on the methodology to fix tariffs, so it is to be hoped the regulator makes something of this power.

The greatest power a regulator has, though, is the ability to increase competition. In the case of telecom, it was the introduction of a large number of players that brought down tariffs to today’s rock-bottom levels, not just the regulator looking at telecom costs while fixing tariffs or implementing some existing-tariff-minus-5% type of formula in a mechanical manner each year. And since electricity regulators never implemented the Electricity Act 2003 in its true spirit, there has never been any competition to monopoly suppliers—that is one of the main reasons for why electricity tariffs have risen while telecom tariffs have fallen. Power production costs, it is true, have gone up with fuel costs rising, but had there been more competition, distribution companies would have worked that much harder to reduce AT&C losses. And that would have brought down tariffs significantly—a 50% AT&C loss, for instance, means tariffs have to be doubled, while a 40% AT&C loss level means tariffs have to be raised by a lower 66%. In the case of the coal sector, even if the GoM had given the regulator the power to fix prices, the only way the sector can become more efficient, or for tariffs to fall, is to bring in more producers. Doing this, however, is something the regulator cannot do unless the Coal Nationalisation Act is scrapped. This is something the GoM needs to ponder over.


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