Regulator may usher in free market era in coal - Quoted in DNA Money

NEW DELHI: The proposed coal regulator will likely develop coal trading in India into a free market concept with greater transparency in award of coal blocks to help the consumers, and clear pricing policy to help the producers.
“The coal regulator will ultimately strive to develop coal business in India as a free market,” a coal ministry official told DNA Money.
Thermal grade coal in India is currently priced at about 35% of the international prices, the official said.
India has state-controlled coal production, where the coal production for commercial selling can be undertaken only by a government company.
Coal mines are also allocated to companies for captive use to generate power, make steel and other purposes, on the condition that the fossil produced from such mines cannot be traded in the market for commercial considerations.
The Prime Minister Manmohan Singh, in his capacity as the Union minister of coal, approved the draft Coal Regulatory Authority Bill over the last weekend to be circulated among the other affected ministries.
The coal ministry hopes to take the Bill to the Cabinet Committee on Economic Affairs by the end of September, after it receives comments and inputs from other ministries, the ministry official said.
With the establishment of a regulator, the coal markets may develop from the transparency, objectivity and accountability in pricing and other commercial matters that the regulatory institution promises to bring in the sector, Dipesh Dipu, principal consultant for mining with the PricewaterhouseCoopers said.
“Regulators may help improve the investment environment through streamlining of the processes of coal block allocation to project implementation,” Dipu told DNA Money, adding that new project implementations can be ensured through effective monitoring mechanism.
Major coal consumers, on the other hand, are also expected to benefit by a more transparent pricing policy expected, an analyst said.
“Coal regulator may ensure prudent pricing of coal and also ensure the enforcement of fuel supply agreements which would help consistent supply of agreed quality of coal,” Dipu of PwC said.
In the process, if there is an increase in the prices of the commodity in line with the international markets, it will be good for the coal industry as the coal companies will realise good returns and fair valuations, said the analyst.
It is, however, unlikely that the coal regulator will allow coal to be priced freely for power generation, which itself is a regulated industry, said Dipu. It is more likely that the coal regulator will work under the ambit of the current policy framework only, he said.It may, however, allow a free pricing of coal to be used by other sectors such as steel and cement, the impact of which has already been well thought of, Dipu said. The prices of steel in the international markets have risen significantly in the recent past, but have been stagnant in India for some time due to the government intervention. The thinking is that prices of domestic commodities should be gradually aligned with the import parity prices, Dipu said.

(I was quoted in the DNA Money issue dated August 27, 2008)