Even if one were to believe that Coal India’s decision to roll back the rise in coal prices was just poll-time politics, it is a decision that signals another step backwards in economic liberalisation. Coal India moved to pricing coal on the basis of the gross calorific value from January 1, which caused, on an average, a 12.5 per cent rise in coal prices. Power producers, state-owned as well as private, said this had started to erode their profitability. Coal India has given in, albeit saying that it will review the situation three months from now. The lobby against the new pricing system was led by state-owned NTPC, the largest thermal power generator, which said its input costs had risen 40 per cent. Under current rules, all non-merchant power plants are free to pass on any rise in input costs to their customers, the state electricity boards and distribution companies. Since not more than 15 per cent of NTPC’s capacity of 36,000 MW is merchant power, it had the option to recover a large chunk of the increased coal cost from the state electricity boards. But it chose not to do so because the state electricity boards are mired in losses, are not allowed to charge more from end-users, and are reluctant to plug theft.
The solution lies at this end of the supply chain. Many states have given free power to farmers. The ramifications are serious. For reasons political, no future government will find it easy to put a price tag on this power. Other states are bound to follow suit. The intended beneficiary is the poor farmer. But, like many other state-sponsored market interventions, the real gainers are the rich farmers — they consume more power because they live in bigger houses, have more implements at home and are more likely to operate pumps to irrigate their fields. No surprise then that Coal Minister Sriprakash Jaiswal called the increase an “error” and said the “country is not in a position to increase power prices”.
The move has also sent out a clear message to the global investor community that deregulation of coal prices in India exists only on paper, and Coal India, though now listed on the stock exchange, is not an autonomous company. Coal is in as much a mess as diesel, kerosene and LPG — a subsidy meant to help the poor has spawned a parallel black market and distorted the markets (diesel cars now outsell petrol cars 4:1; India is the only country in the world with such a skewed market). Coal India had last raised prices in February 2011, but only for users in the deregulated sectors like steel and cement; there was no increase for sectors like power and fertiliser where the end-user price is regulated by the government. The rollback leaves Coal India with a gaping hole in its accounts. The company has raised the salaries of its 363,000 workers, which will cost it Rs 6,500 crore per annum. The increase in coal prices would have fetched it Rs 6,250 crore. It will now have to arrange the money from elsewhere. Power producers lobbied heavily against the price rise even though Coal India prices were up to 30 per cent lower than imported coal. But that wasn’t good enough for them. The chest-beating seems to have worked.
