Shipping rocky coal full of stones and boulders to power stations will be thing of the past as the Competition Commission of India's (CCI) directorgeneral has reported that Coal IndiaBSE 2.05 % abuses its monopoly to arm-twist customers. Meanwhile, state utilities and regulators have decided to penalise the state firm for selling poor-quality fuel.
In a rare case of a giant state monopoly facing the heat for bullying buyers, the competition watchdog has given Coal India four weeks to respond to the charges after the body's director-general concluded that CIL has violated provisions of Competition Act by acting in an unfair and discriminatory manner.
This follows an investigation triggered by aggrieved customers in the power sector. The investigation was launched after the Maharashtra State Power Generation Company (Mahagenco) followed by the Gujarat State Electricity Corporation (GSEC) alleged that Coal India and its subsidiary were abusing their monopolistic might to impose unfair terms on buyers.
New Delhi-based legal firm Praxis Counsel, representing Mahagenco, stated that CIL supplied coal in an ad hoc manner, misrepresented the grade and quality of coal and insisted on one-sided supply pacts. The Gujarat utility said that even if it rejected poor quality coal, the state monopoly would regard it as a case of deemed delivery and declare that the customer was liable to pay.
"The case initiated by Mahagenco will benefit everybody in the power sector that is ailing today. For the first time, any government company has been held guilty of unfair practices," said Sanjay Sen, senior advocate for Praxis Partners. Poor quality coal has increased costs for power producers.
CCI investigation found that the terms and conditions of CIL's fuel supply agreement (FSA) have been drafted unilaterally and there is no consultation process with other parties at any stage. "The conduct of CIL in this regard has been found to be independent of the market forces and it has been able to affect the consumers and market in its favour," read the report by office of the director general, CCI.
Separately, in a meeting of utilities, power firms and Coal India, it was decided that the state firm will now have to pay a penal surcharge for buying electricity from power generators if it supplies inferior grade of coal mixed with stones.
The meeting was also attended by representatives of Central Electricity Authority (CEA) and Central Electricity Regulatory Commission (CERC) following which a committee was formed with representatives from all stakeholders. It was decided that CIL should adhere to the grade it promises from April 1, or else pay penalty on the power it buys from utilities and power companies.
In case CIL continues to supply stones with coal beyond April 1, 2013, this committee will take up the issue with the regulators and impose upon the surcharge on CIL. "CERC and CEA have agreed to the concept of CIL paying a surcharge in case of grade slippage. If there is a slippage after April 1, the committee will appeal to the regulator for imposing the penalty on CIL. The exactly formula for imposing the penalty on power purchased is to be ascertained by the regulator once the committee approached the power regulator," a senior executive, present at the meeting said.