Group 9 Eabdm s13

Are Public Sector Monopolies Benign?
The Case of Coal India Ltd

By Group 9
QUESTION:
What is your opinion on whether CIL and its subsidiaries abused their dominant position in the
market?
ANSWER:
It can be argued that Coal India Ltd (CIL) and its subsidiaries might have abused their dominant
position in the market. Several factors as given below contribute to this.
Market Dominance and Control:

CIL is a significant player in the coal industry, producing a large majority of India's coal supply
and commanding a substantial share of the market. Its market share, combined with its control
over coal production and distribution, indicates that CIL holds a dominant position in the
relevant market.
CIL's dominant position in the coal market is unquestionable. The excerpts highlight several key
points that contribute to its dominance:
• Market Share: CIL accounts for around 82% of the coal production in India. It is the major
supplier to coal-dependent industries, such as power plants, and has a significant market
share.
• Market Control: CIL commands nearly 74% of the Indian coal market and supplies coal
to a large number of thermal power plants, contributing to 76% of total thermal power
generating capacity.
• Limited Competition: The excerpts indicate that participation of private companies in coal
mining for specified end use (captive use) is limited, which further strengthens CIL's
dominance.
• Vertical Integration: CIL controls both production and distribution of coal, which gives it
considerable control over the supply chain.
The alleged abuse of dominant position by CIL and its subsidiaries primarily relates to the quality
of coal supplied, pricing practices, and contract terms. The excerpts mention instances where
power companies complained about receiving low-quality coal at higher prices and non-
transparent contract conditions regarding quality and other parameters. These actions can
potentially indicate anticompetitive behavior and exploitation of CIL's market power.
Quality and Price Manipulation:
The allegations made by power companies, Maharashtra State Power Generation Co Ltd
(Mahagenco) and Gujarat State Electricity Corporation Ltd (GSECL), suggest that CIL abused its
dominant position. They claimed that CIL supplied low-quality coal at higher prices and had non-
transparent contract conditions regarding quality and other parameters. This points toward
potential exploitation of their dominant position to provide inferior products and extract higher
prices.
CIL's pricing mechanisms are also crucial in evaluating whether it abused its dominant position.
The move from Useful Heat Value (UHV) to Gross Calorific Value (GCV) for pricing and the
varying prices based on quality grades create complexities. While variable pricing based on quality
is not inherently wrong, if it leads to opacity or discrimination, it can be problematic. The
discrepancy in prices among CIL's subsidiaries raises questions about consistency and fairness in
pricing.
Clause 3.11: The clause stipulates that the purchaser must accept the coal supplied regardless of
its quality. Even if the purchaser refuses to accept lower-quality coal, they are liable to pay for it.
This clause seems to put the purchaser at a disadvantage, potentially forcing them to accept
substandard coal.
Penalty Clause: The penalty clauses appear to be disproportionately weighted towards CIL's
favor, with penalties ranging from 1.5% to 40%. Such clauses could be seen as exploitative,
particularly when dealing with power utilities that may not have easy alternatives for coal supply.
Unfair Contractual Conditions:

Clauses within the Fuel Supply Agreements (FSAs) with power producers raise concerns about
the terms and conditions that CIL imposed. Clauses like the requirement to accept coal regardless
of quality, penalties for non-acceptance, and limitations on the power producers' rights to verify
coal quality raise red flags. These clauses could be seen as exploitative, as they restrict the power
producers' ability to ensure the quality of the coal they receive.
The change in the coal pricing mechanism from Useful Heat Value (UHV) to gross calorific value
(GCV) based pricing is another example of CIL using its dominant position to unilaterally alter
contract terms. This change could have significant implications for power producers and
potentially affect their costs and competitiveness.
Blocking Market Access: The allegations made by Gujarat State Electricity Corporation Ltd
(GSECL) suggest that CIL's actions prevented the power producer from accessing the market
freely. This is another indication of potential abuse of market dominance to impede competition
and manipulate market conditions.
Role of Regulation:
The Competition Act, 2002, provides guidelines against abuse of dominant position. It outlines
that no enterprise shall abuse its dominant position, and it defines various forms of abuse. The
excerpts mention the Competition Commission of India (CCI) imposing a penalty on CIL for
abusing its dominant position, signaling that regulatory authorities are taking action against
potential anticompetitive behavior.
Removal of Re-Declaration: For new power producers, it's mentioned that CIL removed the
provision for re-declaration of grade in the FSA. This change could potentially deprive power
producers of a mechanism to address consistent deviations from declared grades.
Response to Allegations:
Presidential Directives: The fact that government issued Presidential Directives to CIL to address
certain aspects of its conduct indicates that there were concerns about its behavior. This suggests
that external authorities found reasons to intervene in CIL's operations.
By GROUP 9:
NAME ROLL NO:

Deshmukh Jayee Dilip PGP14068
Hemangi Tiwari PGP14087
Himanshi Agarwal PGP14088
Nikunj Bhadreshwara PGP14062
Diouf Shajahan K T IPM02096

Group 9 Eabdm s13

Uploaded by

Copyright:

Available Formats

Group 9 Eabdm s13

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Group 9 Eabdm s13

Uploaded by

Copyright:

Available Formats

Are Public Sector Monopolies Benign?

The Case of Coal India Ltd

Market Dominance and Control:

Unfair Contractual Conditions:

NAME ROLL NO:

You might also like