Coal is India’s most important source of energy and is particularly significant for the power sector, given that about 72% of the coal consumed in the country is used for power generation and that 67% of the total power generated comes from coal. Coal India Ltd (CIL) is the largest supplier of coal in the country and the world and supplies 80% of India’s domestic coal. There are very high entry barriers in the sector and apart from CIL and SCCL no other company can produce coal for commercial purposes in India. Hence on account of legal provisions, CIL enjoys monopoly in domestic (Indian) coal market. Cost of fuel i.e. coal, accounts for more than 70% of the generation cost for electricity produced by a coal-based Thermal Power Plant (TPP). Most of the base load electricity generation in India comes from coal based TPPs which in turn account for two-third of the total electricity generation in FY 2011-12 .
During a public hearing undertaken by MERC on 12th April 2012 regarding the annual tariff revision process of Mahagenco (case no 6 of 2012), the managing director of Mahagenco mentioned about a petition that they have filed before the Competition Commission of India (CCI) regarding issues concerning with coal supply and quality. In its tariff petitions before the Maharashtra Electricity Regulatory Commission (MERC), Mahagenco claimed that variation in its actual performance vis-a-vis stipulated norms is largely on account of its inability to enforce its commercial contracts with coal suppliers to ensure supply of coal as per agreed quantity and quality . Poor quality and/or inadequate supply of domestic coal adversely affects power generating station’s performance parameters and leads to increase in fuel cost. Further, this may force the generator to blend washed or imported coal which is significantly costlier than domestic raw coal, thereby increasing cost of generation. Thus, from the electricity consumers’ point of view, poor quality and inadequate availability of domestic coal leads to either higher cost of power purchase or load shedding on account of reduced availability.
Based on the information, submited by Mahagenco before MERC, Prayas had filed an intervention application dated 13 July 2012, under section 25 of the Competition Commission of India (General) Regulations, 2009. Through the said submission we had submitted that this issue cannot be treated as mere dispute between Mahagenco and CIL but needs to seen in the larger context of its impact on power sector as a whole. Also since cost of generation directly affects consumer tariff, from the point of view of representing public interest, we had requested the commission to allow Prayas to be an intervener in this matter. However, the commission did not accept our submission to be an intervener in this matter, but directed us to submit our comments and suggestions to the Director General who is in charge of investigation for all matters before the commission. Accordingly, we made detail submission to the DG highlighting issues such as structure of the fuel supply agreement, e-auctions, accountability related issues, pricing policy etc. All the submissions made by Prayas in this context are attached below. Additionally Prayas has also published a detail report on various issues concerning the coal sector in India.