India’s competition watchdog has fined Coal India Ltd (CIL) and three of its subsidiaries a combined Rs.1,773 crore for misusing their position as monopoly suppliers of coal to fix prices and supply poor-quality coal, and do so on conditions that favoured them over the buyers. The specific charges against Coal India, the first state-run company to be fined by the Competition Commission of India (CCI), were: supplying low-quality coal at high prices; retaining the right to unilaterally terminate contracts with buyers; not providing a fair dispute redressal mechanism; and preferring other state-owned companies over private buyers of coal.
- - - -“It is the first time the CCI has penalized a public sector company. Through its order, the CCI has rejected the contention that just because a company is a government entity it does not have commercial interests,” said M.M. Sharma, a New Delhi-based competition law expert with Vaish Associates. “It shows that the CCI is finally focusing on the aspect of competitive neutrality.”
The 101-page order was put up on the CCI website on Tuesday evening. The penalty has been calculated at 3% of Coal India’s average revenue in 2009-10, 2010-11 and 2011-12, which was Rs.52,252.09 crore, Rs.55,101.42 crore and Rs.69,952.33 crore respectively.
- - - Dipesh Dipu, an energy analyst and a partner at Jenissi Management Consultants, said that since Coal India operates in a regulated sector, and is state-controlled, the company can’t be blamed for its pricing mechanism. “Coal India marks its prices on a cost-plus basis. The only other alternative is market-based pricing which would make coal costlier,” he said. In its order the commission regulator has said that it “is not oblivious of the regulated environment in which CIL operates”. “The Commission opined that notwithstanding the overarching policy and regulatory environment, CIL has sufficient flexibility and functional independence in carrying out its commercial and contractual affairs. Such factors, however, were not found to detract from CIL and its subsidiaries operating independently of market forces and enjoying undisputed dominance in the relevant market,” the order said.
- - - -“The order could also mean that the government may be forced to amend the coal nationalization Act,” Dipu said. The Coal Mines (Nationalisation) Act, 1973, which governs the mining and trade of coal in the country, had nationalized all the private collieries in the country. A senior CCI official however disputed this and said that the coal nationalization act was “only a policy decision by the government” and that “signing of the FSAs had nothing to do with it.” The official didn’t want to be named.
For the full report in the LiveMint, click here
This is certainly a far cry from the MRTP Act days, and hopefully provides a route to unshackling of many other government monopoly regimes too - more specifically, bus services (check here), Railways (check here) - exciting times indeed.