Pricing power on the anvil for coal regulator

The coal ministry has amended the Coal Regulatory Authority Bill for empowering the proposed sectoral watchdog to have a decisive say in fixing prices of the fuel by prescribing a methodology for it. This, the ministry says, is necessary as its own utility Coal India Ltd is allegedly executing a pricing regime aimed at mopping up huge margins to "financially benefit" its staff.

The move is likely to trigger concerns within the rank and file of the world's biggest coal miner, as it virtually amounts to clipping CIL's wings in deciding the pricing mechanism, even as some officials say that the ministry is playing into the hands of the power ministry. Their apprehension comes close on the heels of the power ministry demanding that the proposed coal regulatory authority be empowered to decide on the pricing to benefit electricity generating companies.

In a December 13 note to the Group of Ministers (GoM), which is currently deliberating on the contours of the proposed regulator, the coal ministry stated that its experience indicates "the method of price fixation adopted by CIL is linked only to increase in the wages of its employees, which needs to be corrected". While CIL can continue to fix prices of its produce, it must do so in a rational, scientific and transparent way, while the methodology of doing so would be in the domain of the regulator, it has argued.

"To counter the effects of monopolistic producers like CIL, a mechanism is required to ensure supply of good quality of coal and a rational approach to price fixation. A modified provision in the Bill is being proposed to allow the authority to prescribe the principles and methodologies for price determination with the approval of the government," the coal ministry told the GoM.

The ministry, by saying that CIL's pricing mechanism is linked to its employees wages, implied that the pricing is tilted to register more profits for allowing higher Performance Related Pay (PRP) for its over 3.5 lakh employees. The maharatna miner has already on June sought the Union Cabinet's approval through the coal ministry to pay PRP of nearly Rs 200 crore. This, despite the fact that it is already combating a wage burden of Rs 6,500 crore on account of the sixth pay commission recommendations. In a note to the Union Cabinet on June 17, the coal ministry proposed that CIL should be allowed to determine the corpus of PRP which is due since 2007-08 on its profit before tax based on its consolidated accounts and not from the individual accounts of its seven subsidiaries as required by the Department of Public Enterprises.

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