Chapter 3 : Competition Issue in Energy Sector and Role Of Sector

Specific Regulator And CCI

Infrastructure sector, which includes oil, natural gas, transport, telecom, construction etc.,
during 1990s, was one of the reform deficit areas. In the past periods, infrastructure
sectors have been under government control and were working without any competition.
Further the services were provided by generally by natural monopolies which produced
inefficiencies in management. Additionally to this there was a insight that competition
is impracticable in these sectors due to their inherent characteristics. However induction
of regulated competition extremely important since infrastructure projects had to
balance many commercial and public interests. Lack of competition would, lead to poor
service of quality, inefficient resource allocation and operational inefficiencies . In
1990s, great importance was laid on making the infrastructure sector open to competition
wherever possible and on enhancing the contribution of private players. This attracted
huge private investments in a variety of infrastructure facilities, after which, this sector
has shown considerable improvements. It has metamorphosed into a sector which is more
organized and is also witnessing increased competition with growing private sector,
innovative partnership models, and foreign players. In this section, we focus on the
competition issues in infrastructure sector with specific reference to the electricity sector.
We look into the challenges faced in introducing competition in various segments of this
sector. The energy sector witnessed major policy changes, regulatory initiatives and
structural changes during the period of economic reforms as it was widely recognized
that reliable and uninterrupted power supply is one of the basic necessities for the growth
of industries. Unbundling of the sector, de-licensing and legal initiatives to bring in
competition have been initiated. The most important initiatives to bring in competition
were letting private players in generation of electricity and provision of ‗open access‘ to
generating companies to the transmission grids and to the end users of choosing their
supplier. The changes that these initiatives have brought about are quiet significant, but
have not necessarily been in the direction intended. India continues to be a power-deficit

102
economy and the core problems of wastages, lack of efficiency and competition still
remain to be addressed successfully249.

3.1 Introducing Competition in Infrastructure Sector

The infrastructure sector, comes network industries and for network industries, markets
frequently involve huge capital , high risk investment, intensive and interdependent
technologies which owned by different players in the market .In a few industries only
are participants in the market owing to the huge capital as a result the dominant firms
can effortlessly increase the barriers to market access to eliminate the competitors250.
Therefore there is requirement to regulate this sector efficiently. As we know that
Electricity supply, telecommunications, railroads, highways, ports, oil and natural gas etc
are few examples of network industries

So by providing the open access, competitors were positive to invest into these sector of
infrastructure ,otherwise it might continued to remain a monopoly. Open access was
seen as the only effective way to encourage immediate competition in the sector and
make it function efficiently. In other words even if transaction costs of measuring
demand were zero, suppliers would favour existing use and applications that involve
appropriable and observable benefits at the expense` of applications that generate positive
externalities. Therefore support (subsidy) for such infrastructure goods is important or it
will be undersupplied. The particular conceptual insight here is that an orientation
towards open access accords benefits to all.251.

3.2 Electricity Sector

The mounting significance of competition as a way to progress efficiency and welfare of
consumer is gaining impetus in almost all sectors. Different countries adopted several
various restructuring models in which electricity sector is one. Though, India has not
249
K.Vaishali, Competition Issues In The Infrastructure Sector With special reference to the Indian
Electricity Sector(internship report submitted to CCI , 2012)
250
This is what creates natural monopolies in few segments. Competition was not possible unless some
alternative was made to exclude the new entrants from making such huge investments. The solution to this
problem emerged in the form of allowing the new entrants to legally use the infrastructure networks which
were already created and maintained.
251
Ibid

103
been able to take the benefits from the accomplishment of reforms in liberalization,
although the reforms have been initiated under Electricity Act, 2003, and it contain a
range of provisions in the Act, which bear clear intent and purpose for increasing
efficiency and competition as the chief quest for ensuring meaningful reforms in the
power sector.252

Although the provision given under the Electricity Act 2003, helped to set the base for a
competitive market in electricity sector. From January 2009, under the provision of
transmission and open access which renders for all users and the retail market (for all
consumers above 1 MW ) competition has been started. Though the act has provided
seral provision on competition but still it could not generate fruitful result except in
generation segment .Still in the field of generation segment the competition has been
witnessed as half-hearted253. There are two major reasons behind this first is monopoly
at the raw material side means dominance in Coal and Gas sector and secondly
monopsony at the procurement side means single buyer model for the generated
electricity . However the existing framework of the Act can promote competition in the
generation segment, but there is lack of competition in the upstream segment because
coal is a government monopoly which affects the competition at the generation level also
.At the time of the XI Five Year Plan, around 22% of the total capacity was planned to
be added by private sector with private sector contributing as much as 13.69% of the total
electricity generation.254

The Electricity Act rendered the restructuring the vertically integrated segments into
unbundled and independent activities. The Electricity Act further recognized the

252
Shri V Ailawadi MS Bhawana Gulati ,Ensuring Electricity to All: Promoting the Competition in the
Sector http://www.circ.in/pdf/Electricity_Sector.pdf (last visited on April, 2015)
253
Competition in the Electricity Sector, Dec 2010 available at http://www.competition-commission-
india.nic.in/work_Shop/March14-15_2007/3.%20TERI%20Presentation%20-
%20March%2015,%202007.pdf(last visited on 2nd May, 2013)
254
Eleventh Five Year Plan on Energy, Planning Commission, Chapter 10, pp 354.

104
capability of competition generation and distribution sector which in return provides for
welfare of the consumers.255.

As by applying the competition in practice Discoms has acquired new power

requirements from various suppliers on competitive basis. By using inter-state open
access various short-term transactions has grown over 10 times since its inception which
involves around more than 100 buyers and sellers.256.

As the benefits of the competition is more efficient than brining the regulation for
promotion of private sector participation through huge investments in Electricity Supply
sector Nevertheless there are several policy issues in the electricity sector which
obstruct competition in the market.

The following points attributes in the problem for effective regulation of competition257-
1) ―The short-run demand elasticity for electricity is very low and supply gets very
inelastic at high demand levels as capacity constraints are approached. As a result,
spot electricity prices are becomes inherently very volatile and unusually susceptible
to the creation of opportunities for suppliers to exercise market power unilaterally‖.258
2) There is lack of competition in generation sector as the coal and other source of
energy which are used as input in electricity generation are remain under dominance
of government
3) In transmission segment, there is lack of access to transmission networks and there
are issues with pricing of transmission capacity.
4) There are various illustration which provides the conditions favourable to
collective dominance: ―the relationship of interdependence existing between the
parties to a tight oligopoly within which, in a market with the appropriate

255
Ibid
256
Electricity industry in India USIBC Nuclear Mission available at
http://www.usibc.com/sites/default/files/committees/files/electricityindustryinindiapwcreport.pdf
257
James M. Griffin Steven L. Puller, Electricity Deregulation: Choices and Challenges , 40 (University
of Chicago Press , 2005),
258
Ibid

105
 characteristics, in particular, in terms of product homogeneity market concentration
and transparency, those parties are in a position to anticipate one another‘s behaviour
,are therefore encouraged to align their conduct in the market in such a way as to
maximize their joint profits by restricting production with a view to increasing
prices‖259.

The wholesale markets in the Electricity sector thus demonstrate the salient features that
are likely to maintain collective dominance, and which in return allow prices to remain
well above competition level.260.

Moreover there are irrational Tariffs in relation to end-user and regulators are not
having have needed capacity to handle competition. The Electricity Act, 2003 has
provided for governments of state to unbundle the SEBs and under this act the concept of
open access has been promised but interstate transmission and distribution within states is
still under monopoly. A non-merit based subsidy delivery mechanism is one of the
biggest hurdles in the way of privatization of distribution entities. The price for the
Electricity generation ―constitutes roughly 60-65% of the total cost of electricity supply,
and 25% accounts for distribution and remaining 10% is the transmission cost‖. Hence it
can be seen that efficient competition in the field of generation segment in the field of
electricity can lead to reduction in the cost of supply of electricity substantially and
further it will improve competence.

Section 61 and 62 of the Electricity Act ,2003 provides ―for determination of tariff for
transmission, generation, distribution and supply by Appropriate Commission‖. Section
63 of the Act ―provides for the Commission to adopt such tariffs, which have been
determined through a transparent process of Competitive Bidding provided the process is
in accordance with the guidelines issued by Central Government National Tariff Policy

259
Supra note 240
260
David M. Newbery, The Relationship between Regulation and Competition Policy for Network Utilities,
CPRC Discussion Paper Series Competition Policy Research Centre Fair Trade Commission of Japan,
University of Cambridge ,December 2003

106
2006 mandates all future requirements of power to be procured through competitive
bidding‖

But here one rider is given in favour the projects related to public sector as it can be
excluded from competitive bidding for a period of 5 years.261. Section 86(1) (b) of
Electricity Act 2003, provides the the state commission for the regulatory purview of
agreements between generating companies and the licensee or other sources. Therefore
every power purchase agreement entered into by a distribution licesnsee with
generating companies has to be approved by the State Commission in the case of BRPL
262
v. DERC it was held that ―both the process of competitive bidding guidelines and
negotiated route are adopted or approved by the State commission under section 63 and
section 62 of the Electricity Act 2003”

In the case of the Bangalore Electricity Supply Corporation Limited V. Kanaark Power
Projects and another263 it was held that with reference to applicable regulations that
PPA are concluded contracts and that there is no scope for the state commission to vary
the tariff agreed between the parties under approved PPAs.

In re: Tata Power Delhi Distribution Limited Vs. NTPC Limited264

In this case information has been filed by Tata Power Delhi Distribution Limited under
Section 19(1)(a) of the Competition Act, 2002 against NTPC Ltd. against the violation of
section of Sections 3 and 4 of the Act. CCI held ―Commission is of the opinion that no
prima facie case of contravention of either Section 3(4) or Section 4 of the Act arises in
the facts Case No. 20 of 2017 Page 18 of 18 and circumstances of the present case and
the matter is closed forthwith in terms of the provisions of Section 26 (2) of the Act‖

Maharashtra Electrical Engineers Association Vs. Maharashtra Industrial Development

Corporation & Other265.

261
Ibid
262
2010 ELR(APTEL) 0404
263
Civil appeal No 5612 of 2012
264
Case No. 20 of 2017

107
The present information has been filed by Maharashtra Electrical Engineers Association
(‗the Informant‘) under Section 19(1)(a) of the Competition Act, 2002 (‗the Act‘) against
Maharashtra Industrial Development Corporation ( and Royal Power Trunkey
Implements Private Limited. It is also alleged that the conditions in the tenders are
completely one-sided which have been incorporated to benefit OP-2. Accordingly, the
Informant has alleged contravention of the provisions of Section 4(2)(a), (c) & (d) of the
Act. It is further alleged that the tender documents/conditions are also anti-competitive
within the meaning of Section 3 of the Act266.

It was held that ―no case of contravention of the provisions of the Act is made out against
the Opposite Party and the information is ordered to be closed forthwith in terms of the
provisions contained in Section 26(2) of the Act‖

3.2.1Open Access Regime under Electricity Act, 2003

It is more sensible for companies to share these facilities rather than waste resources in
trying to duplicate the same due to the heavy investments in assets and facilities
facilitating electricity transmission generation, and distribution. As the benefits of policy
of open access follow from enhancing competition in the upstream market, generation
segment in case of electricity. The continuation of a competitive market in electricity
depend largely on electric power transmission and open access to the power grid by
competing generators. As it said that ―transmission systems consist of natural
monopolies that have all of the characteristics of an essential facility. Thus, the continued
viability of a competitive wholesale power market requires transmission owners (if the
transmission owner is also in the wholesale power market) to provide access to
generators on equal terms and not to discriminate against other generators‖.

For competition in the field of the retail power market, which refers to the supply of
electricity, the distribution licensee of a particular area have to provide open access to
other competitors in the market so that customers can buy power from suppliers of their
choice. The Electricity Act, 2003 defines ―open access‖ to mean ―the non discriminatory

265
Case No. 52 of 2017
266
http://www.cci.gov.in/sites/default/files/52%20of%202017.pdf (last visited Oct,2015)

108
provision for the use of transmission lines or distribution system or associated facilities
with such lines or system by any licensee or consumer or a person engaged in generation
in accordance with the regulations specified by the Appropriate Commission.‖267

Open access means to non discriminatory use of transmission lines or distribution system
etc by any licensee or consumer etc. The S. 9(2)268, Electricity Act, 2003 provides that
it provides that person who are engaged in captive generation plant have right to open
access from generation plant for the purpose of supply of electricity 269

Further s. 38(2)(d), ―imposes a duty on the Central Transmission Utility to provide non-
discriminatory open access to its transmission system for use by (i)any licensee or
generating company on payment of transmission charges;
(ii) any consumer as and when such open access is provided by the State Commission
under provisions of the Electricity Act, on payment of transmission charges and a
surcharge thereon as may be specified by the Central Commission‖270.
However surcharge is not imposed for open access to captive power plants for
transmission of electricity to the destination of its own use.

S.39 (2)(d) of The Electricity Act, 2003 ―which imposes a duty on the State
Transmission Utilities to provide non-discriminatory open access to its transmission
system for use by : (i) any licensee or generating company on payment of transmission
charges; or (ii) any consumer as and when such open access is provided by the State
Commission under provisions of the Electricity Act, on payment of transmission charges
and a surcharge thereon as may be specified by the Central Commission‖.

267
S. 2(47) Electricity Act, 2003
268
every person who has constructed a captive generating plant and maintains and operates such plant, shall
have the right to open access for the purposes of carrying electricity from his captive generating plant to the
destination of his use, provided that such open access shall be subject to availability of adequate
transmission facility and such availability of transmission facility shall be determined by the Central
Transmission Utility or State Transmission Utility as the case may be and any dispute relating to the
availability of transmission facility shall be adjudicated upon by the Appropriate Commission‖
269
Supra note 103
270
Section 38 (2) (d) of Electricity Act, 2003

109
Hence above section provide that state transmission unit to provide open access on non
discrimination to its transmission system. Further the surcharge so imposed is required to
be used for the purposes of meeting the requirement of cross subsidy that have to be
progressively reduced in the manner as may be specified by the Central Electricity
Regulatory Commission271. Further S 40 (c) of the Electricity Act 272
which levy a duty
on licensee of every transmission to render non-discriminatory open access to its
transmission system for use by other licensee generating company on payment of
transmission charges.

In Hari Chanad V Daksin Harayana Bijli Vitran273 , by the conjoint reading of section
135 and section 145 of Electricity Act court upheld the bar on civil courts in
entertaining matters under section 126 of the electricity act .

The Electricity Act, 2003 mandates ―that the relevant State Electricity Regulatory
Commissions, in specifying the extent of open access shall have due regard to all relevant
factors including cross subsidies and other operational constraints‖

Hence it is clear from above section that in relation to distribution licensees, the power is
vests with the relevant SERC, with the authority to introduce open access in such phases
and subject to such conditions which may include cross subsidies and other operational
constraints as may be specified within one year of the appointed date by it and specify the
extent of open access in successive phases and in determine charges for wheeling.274.

271
Section 39(1) (d) of The Electricity Act, 2003
272
which imposes a duty on every transmission licensee to provide non-discriminatory open access to its
transmission system for use by any licensee, generating company on payment of transmission charges, any
consumer as and when such open access is provided by the State Commission under provisions of the
Electricity Act, on payment of transmission charges and a surcharge thereon as may be specified by the
Central Commission.
273
R.S. A no 1002 of 2014 (O &M)
274
Section 42 (2) Electricity Act, 2003

110
3.2.2 Limitations on Open Access275
Even after a number of years since passing of the Electricity Act , there is inadequate
success in the field related to open access. Even though it is provided under Section 42
of Electricity Act, ‗to allow open access to all consumers above one megawatt load‘.
Yet various consumers are yet to have the freedom to choose their electricity suppliers.
There are several reason for the same as more or less none of the state utilities have
revised their rate of tariffs to keep in line with rising costs of electricity which resulted
into over reliance on the industry as a consequent to that , it is hard nut to crack for
state utilities to give open access to industrial consumers as that may lead to economic
problems for utilities. As a outcome to that various technical issues to emerge refute
open access or levy high charges for it. In addition to this the state load dispatch centres
(SLDCs) have denied open access to guard SEB from competition and it is not able to
work as a independent regulator Another reason is that it is not easy to persuade a
monopolist to give up its privileges of monopoly.

―Though Kerala was the first state to have allowed open access. But it did not take place
as the applicant has shifted to another state. In Punjab, 2 applications were received for
open access and both were approved as well as implemented. Despite the State facing
acute power shortage, 5 Generators (Captive & Co-generators) have been allowed Open
Access to sell power outside the State in open market. Haryana and Himachal Pradesh are
yet to implement open access though there have been a number of applications received.
The following table gives data on open access capacity sought, approved and successfully
implemented .West Bengal Electricity Regulatory Commission (WBERC) has granted
open access to 3 applicants, but it is yet to commence. The Jharkhand State Electricity
Regulatory Commission (JSERC) has allowed one applicant (TISCO) to have open
access, but OA is not taking place because this has been challenged by Jharkhand State
Electricity Board (JSEB)‖.276. The table 1 in this regard is given below:

275
Supra note 240
276
Analysis and Compilation of Tariff Order,( Ministry of Power and Government of India, 2007),
available at http://powermin.nic.in/whats_new/pdf/MoP_TERI%20May%202007.pdf(last visited April ,
2017)

111
 State Application Capacity Approved Capacity Cases Capacity
received (MV) Implemented Implemented
Andhra
9 130 2 44 2 44
Pradesh
Chattisgarh 14 333 6 66 5 53
Gujarat 15 871 15 871 15 871
Haryana 2 573 0 0 0 0
Himachal
3 32 0 0 0 0
Pradesh
Jharkhand 1 40 0 0 0 0
Kerala 1 30 1 30 0 0
Madhya
29 56 29 56 29 56
Pradesh
Orissa 1 5 1 5 1 5
Punjab 2 21 2 21 2 21
Rajasthan 29 259 12 165 12 165
Tamil Nadu 12 1764 0 0 0 0
Uttar
5 46 5 46 5 46
Pradesh
West
4 86 3 36 0 0
Bengal
Table 1
As it is clear from above mentioned data that Tamilnadu is a major defaulter. While it
has received open access applications for 1,764 mw, the highest of all states, but not even
single application it has not approved by it . Therefore various state governments, ,
find it easy to invoke this section to misuse it in their favour and protect state
monopolies though open access is a statutory right under section 42 of the EA277

277
ibid

112
Top Power Deficient States in 2012 (MV)278
Region Demand Supply Gap(MV) Gap%
Maharashtra 21954 17456 4498 -20.5%
Tamil Nadu 14,224 10652 3572 -25.1%
Uttar Pradesh 13947 10464 3483 -25.0%
Punjab 11000 7729 3271 -29.7%
Andhra
15721 12470 3251 -20.7%
Pradesh
Bihar 3607 1459 2148 -59.6%
Orissa 4459 3489 970 -21.8%
Rajasthan 8482 7622 860 -10.1%
Madhya
8462 7660 802 -9.5%
Pradesh
Table 2
It is also evident from this chart that Tamil Nadu is major defaulter in terms of supply of
electricity according to statistics of 2012.

3.2.3. Competition Issues related to Electricity Sector

There are various competitive issues are given below:

3.2.3.1. Issue related No level playing field

There is dominance of Public sector in the matter of electricity supply chain which
undoubtedly results in inequitable treatment to the private players and affects neutrality
of independent regulators. Moreover in the field of transmission, again, there is existence
of monopoly of the state and most States have Discoms which are government owned.
In actuality, in such state of affairs, the concept of non-discriminatory open access is not
easy to implement . So here in this case as a result states can exercise their control to arm
twist the STUs for allowing distribution transmission and network to State Discoms.
There is lack of level playing field at the procurement side. Additionally NTPC, which is

278
Perspectives on Electricity Regulations & Competition: Indian case study available at
http://www.safirasia.org/safirpdf/namas-safir.pdf(last accessed on 23 May , 2017)

113
public sector undertaking, has been accorded differential preferential treatment leading to
issues of competition neutrality, which is contrary to the clause 5.1 of National Tariff
Policy, 2006279

3.2.3.2 Issue related to misuse of Sec 11 of the Electricity Act, 2003

Section 11 which deals with open access and Section 11 in its explanation, which is very
specific in laying down the criteria for issuing directions i.e. “extraordinary
circumstance smeans circumstances arising out of threat to security of the State, public
order or a natural calamity or such other circumstances arising in the public interest”.
Therefore, the power of discretion given to State government is qualified by the
explanation inserted in Sec.11. Although such discretion not to be used in such a way
that hamper the inter-state trading of electricity. In practicality this provision has been
broadly distorted by state governments for denying Open Access to the generating
companies.

In case of Tata Power Co. Ltd. Vs. Reliance Energy Ltd 280has held as under:

“Electricity is not an essential commodity within the meaning of the provisions of

the Essential Commodities Act, 1955 or any other statute. It is, however, in short supply.
As the number of consumers as also the nature of consumption have increased manifold,
the necessity of more and more generation of electrical energy must be given due
importance. The Preamble of the 2003 Act, although speaks of development of electricity
industry and promotion of competition, it does not speak of equitable distribution of
electrical energy. The statutes governing essential and other commodities in respect
whereof the State intends to exercise complete control, provide for equitable distribution
thereof amongst the consumers."

279
Clause 5.1 of the National Tariff Policy, 2006, provides that ―all future requirement of power should be
procured competitively by distribution licensees except in cases of expansion of existing projects or where
there is a State controlled/owned company as an identified developer and where regulators will need to
resort to tariff determination based on norms provided that expansion of generating capacity by private
developers for this purpose would be restricted to one time addition of not more than 50% of the existing
capacity
280
. (2009) 16 SCC 659

114
In the case of G.M.R. Energy Limited vs Karnataka Electricity281it was held that

“Off setting the adverse financial impact on a generator which supplied electricity to the
distribution licensees in compliance of the directions of the State Government
under Section 11(1) of the Electricity Act, 2003 would mean fixing a rate keeping in view
the revenue the generator could have realized in short term market subject to the
condition that the rate covers the cost of generation so that the generating company does
not incur a loss”.

3.2.3.3 Issue related to Restructuring of Load Dispatch Centers (LDCs) as

independent System Operator to protect competition.
Although in all states the concept of unbundling is prevalent but its efficiency is still a
great challenge. In the report given by Girish B. Pradhan the states that ―LDC are not
working as a independent entity as a consequence of that issue related to unbundling
gets affected . Unless and until LDCs are independent it would not be able to properly
do ring fencing and there will not be freedom to give decision outage planning system
strengthening, etc".

3.2.3.4 Issue in relation Monopoly in fuel supply

Though the Electricity Act, 2003, talks about the promotion of competition but in reality,
it is not very effective and only half-hearted. There is a necessity to reinforce the
significance of competition to ensure efficiency in energy sector and consumer welfare.
The initiative to liberalize generation segment and to provide level playing field, have
been underprovided as coal and gas sector remains under dominance of government .
As it is known that electricity sector specially in generation sector cannot function
competitively unless there is competition in coal or price related thereto.

281
Appeal nos. 37 of 2013 and 303 of 2013

115
3.2.3.5 Issue related to financial health of the sector for sustaining competition
The remarkable recommendations of the Shunglu Committee Report was given on
December, 2011 it noted that ―the high losses of State Electricity Boards are primarily
on account operational practices of distribution companies compounded by irrational
tariffs fixed by regulators and poor managerial. The Committee has recommended that
the State Electricity Regulatory Commissions should be made independent financially as
well as in their functioning‖282.
This committee analyzed that there huge loss of SEB because there is poor management
in this sector and in addition to that there are irrational tariff and it recommended the
independence of SERC

3.2.3.6 Issue in relation to Restructuring of Electricity Boards

As the unbundling is very important to ensure competition and for creating level playing
field.
Almost in all Indian states the concept of unbundling has taken place . Though in reality
in some states the concept of unbundling has not been achieved to the greater extent.
The reason of unbundling is to provide independence to different segments of the
electricity value chain so that they can function competitively and efficiently. But due to
overlapping of board membership of the STUs and Discoms has led to favoritism and
biased decision making.

3.2.3.7 Issue in relation Liberalization of Retail Supply level

The competition in retail supply in electricity involve the occurrence of many retail
distributors of electricity from whom the consumer can choose depending upon their
requirements. Although the Electricity Act provides for multiple distribution licensees,
the distribution business but it had been retained as a monopoly to avoid duplication of
assets and wasteful expenditure283.

282
Petition for removal of barriers to Open Access in Inter-State Transmission Network and promote
competition in Power Market, 2009, clause 8.11.
283
http://www.circ.in/pdf/Electricity_Sector.pdf(last visited on 24th May, 2016)

116
3.2.3.8 Issue related to Essential Facilities Doctrine (Open Access) for transmission
and distribution network
As this concept is recognized in the NEP, 2005, Electricity Act, 2003, is indirect. But in
reality this concept has not been implemented to fullest extent in transmission and
distribution.

As in the case Molay Kumar Acharaya V. Chairman Cum Managing Director, W.B State
Electricity Distribution Co. Ltd And Others (AIR 2008 Cal 47)
Court held that no one in modern days can survive without electricity, therefore right to
electricity is also right to life and liberty in the terms of article 21 of the constitution

Bihar State Electricity Board v. Bihar State Human Rights Commission, (AIR 2013 pat
11), the court held that the electricity is an absolute requirement of life and deliberate
failure to supply electricity is violations of human right cognizable by the appropriate
forum under protection of Human Rights Act, 1993.

T M Praaksah And Others V. The District Collector and The Superintending Engineer ,
Tamil Nadu Electricity Board (2014 1 MLJ 261), Madras high court observed that lack
of electricity supply is one of the determinative factor affecting education , health ,
causing economic disparity and inequality in the society and consequently leading to
poverty thus court recognized access to electricity one of the modern service as a basic
facet of right to life under article 21 of the constitution which enables and facilities the
fulfillment of other fundamental rights.

After discussion of above mentioned case law it is clear that electricity is basic facet of
right to life hence it has to evolve accordingly. For fulfillment of this purpose
competition is necessary aspect.

117
3.2.3.9 Issue related Single National Market in India
The structure of the present market revolves around single national market in India and
the rate at which the reforms have gone till now hold out very little hope in the future of
electricity market, for active competition and customer welfare.

3.2.3.10 Issue Related To Competitive Bidding

Section 5.1 of the National Tariff Policy 2006 says,

―All future requirement of power should be procured competitively by distribution

licensees except in cases of expansion of existing projects or where there is a State
controlled/owned company as an identified developer and where regulators will need to
resort to tariff determination based on norms Even for the Public Sector projects, tariff
for all new generation and transmission projects should be decided on the basis of
competitive bidding after a period of five years or when the Regulatory Commission is
satisfied that the situation is ripe to introduce such competition.”
As it evident from the above quote the National Tariff Policy there is provision for
competitive bidding for private generators and it provides exception to public sector
undertaking for some years which puts the private companies at unfavorable position
284
.

3.3 Competition in Coal sector in India

Energy security in India revolves around coal sector as coal attributes around half of
primary commercial energy in India. Coal is expected to remain most important source
of energy for the coming decades in India. However, the sector has been beset with
controversies of late such as the ‗coal-gate‘ scam related to allocation of captive coal
blocks and insufficient coal production hence it is pertinent to study the competitive
issues in coal sector in India 285

In the early 1970s due to unorganised growth, incapability of the sector to supply to the
wants of the economy together with unscientific exploitation of coal reserves, despicable

284
Competition In India‘s Energy Sector , (TERI 2007)
285
Supra note 23

118
conditions at work, etc, resulted into a series of enactments for nationalising coal
mining. The GOI taken over the management of the Coking Coal and Coal Mines and
thereafter nationalized the mines . Though the main purpose of nationalisation was to
increase efficiency and capital investment in the coal sector, given the rising demand for
coal further it was also done to check unscientific mining and better working conditions
for workers. However it is observed that the aim behind nationalisation has not been
entirely achieved because of continued shortage of coal and deteriorating quality of
286
thermal coal, however issues in relation to mine safety have been addressed. . Hence
at that time all existing mines were brought under the umbrella of CIL. And since
nationalization, the exclusive right are conferred on public company to carry out
―reconnaissance, prospecting, mining and production of coal‖ .Since then there has been
change in the autonomous monopolistic nature of CIL, however, various legislative
initiatives and regulatory orders have been set up to tame this monopolistic nature.
Recently, the CCI has suggested that the government must begin a process in the course
of which more and new players can be inducted in the mining sector.

M/s Maharashtra State Power Generation Company Ltd. v. Coal India Ltd. & Ors, 287the
CCI has observed in case against CIL for abusing its dominant position in the market,
that, “the effects of various anti-competitive factors identified in the coal sector on the
rest of the economy are widespread and create systemic risk. Inefficiencies in any one
segment are felt in the entire value chain with a cascading impact on the end-consumers
of electricity… there is an imperative need to…restructure the sector by introducing more
players to reduce the dominance of any one player and facilitate competition.288‖ Further,
CCI has also observed that due to monopoly of CIL , consumers have been paying
higher electricity rates and CCI ruled that ―CIL through its subsidiaries operated
independently of market forces and enjoyed undisputed dominance and has imposed
unfair/ discriminatory conditions in the matter of supply of non-coking coal to power
producers and in lieu of its observations imposed a penalty of Rs. 1773 crores, a first of
its kind over a public sector enterprise. CIL is not only the nation‟s largest coal

286
Supra note 14
287
Case No. 03, 11, 59 of 2012,
288
Supra note 17

119
producer, but is also the single largest producer of coal in the world”289 Afterward CIL
challenged the order passed by CCI. In the meantime CIL has been asked to deposit Rs.
50 crores as security.290

Industries and Commerce Association Vs. Coal India Limited & Others 291,The present
case has been filed by Industries and Commerce Association under Section 19(1) (a) of
the Competition Act, 2002 collectively against Coal India Limited ,Bharat Coking Coal
Limited and Ministry of Coal for alleged contravention of the provisions of Section 4 of
the Act.

It was held that ―while formulating policies, MoC is not engaged in any of the activities
specified in Section 2(h) of the Act which defines „enterprise‟. Formulation of policies
does not fall in the realm of commercial or economic activity as envisaged under the
definition of the term „enterprise‟ as given thereunder. Hence, it is unnecessary to
examine as to whether MoC, CIL and BCCL constitute „Group‟ for the purposes of
Section 4 read with Explanation (b) to Section 5 of the Act In view of the above, the
Commission is of the opinion that no case of contravention of the provisions of the Act is
made out against the Opposite Parties and the information is ordered to be closed
forthwith in terms of the provisions contained in Section 26(2) of the Act.”

Bijay Poddar Vs. Coal India Limited & Others292,The present information has been filed
by Shri Bijay Poddar (‗the Informant‘) against Coal India Limited and Central Coalfields
Ltd. alleging ―C. No. 18 of 2017 Page 2 of 9 contravention of the provisions of Sections
3 and 4 of the Competition Act, 2002 (‗the Act‘). Essentially, the Informant has alleged
contravention in respect of sale of non-coking coal through ‗Spot E-auction Scheme
2007‘ by CIL and its subsidiaries‖ it was held that no case is met out against the opposite
party .

289
CIL Annual Report & Accounts 2011-2012, Chairman‘s Statement, availble at
http://www.coalindia.in/Documents/Coal_India_A R_2011_-_2012_17082012.pdf ( last visited on Feb
2018‖)
290
Supra note 17
291
CCI , Case No. 60 of 2017
292
CCI ,Case No. 18 of 2017

120
Sai Wardha Power Generation Ltd., vs Western Coalfields Limited293,Competition
Appellate Tribunal (COMPAT) upheld a order of CCI against CIL and Western
Coalfields Limited for acting independently of market forces and being in a dominant
position on the market for the production and supply of non-coking coal to thermal
producers, which in violation of the Competition Act .

These are the following competitive issues in the coal sector which are given as below:

3.3.1 Issue 1) As per the Section 3 of The Coal Mines (Nationalisation) Act, 1973294
which ― deals with exclusive rights to a supplier namely Ministry of Coal Or CIL or
SCCL to provide goods or services such as mining, production, and sale of coal‖
.Hence it controls the number of firms permitted to enter into coal sector and it is amply
clear that only state-owned enterprises operate in this sector. Further government
companies receive benefits or preferential treatment which is not available to other firms
which have the effect of limiting competition in the coal sector. The regime at present
reduces the incentive of suppliers to compete as a result of that coal companies have been
slow in adopting new techniques or increasing the size of equipment, the companies to
adopt modern technology to increase productivity.

293
Appeal Against Order No.62 of 2017
294
On and from the commencement of section 3 of the Coal Mines (Nationalisation) Amendment Act, 1976
(67 of 1976)- (a) no person, other than-- (i) the Central Government or a Government, company or a
corporation owned, managed or controlled by the Central Government, or (ii) a person to whom a sub-
lease, referred to in the proviso to clause (c), has been granted by any such Government, company or
corporation, or (iii) a company engaged in- (1) the production of iron and steel, (2) generation of power, (3)
washing of coal obtained from a mine, or (4) such other end use as the Central Government may, by
notification, specify (b) excepting the mining leases granted before such commencement in favour of the
Government, company or corporation, referred to in clause (a), and any sub- lease granted by any such
Government, company or corporation, all other mining leases and sub-leases in force immediately before
such commencement, shall, in so far as they relate to the winning or mining of coal, stand terminated; (c)
no lease for winning or mining coal shall be granted in favour of any person other than the Government,
company or corporation Provided that the Government, company or corporation to whom a lease for
winning or mining coal has been granted may grant a sub-lease to any person in any area on such terms and
conditions as may be specified in the instrument granting the sub-lease, if the Government, company or
corporation is satisfied that- (i) the reserves of coal in the area are in isolated small pockets or are not
sufficient for scientific and economical development in a co-ordinated and integrated manner, and (ii) the
coal produced by the sub-lessee will not required to be transported by rail.

121
3.3.1 Issue 2 )With regard to non – working of Coal Blocks and Mining Licenses, CIL
does not invite cancellation and State-owned enterprise receiving any benefits or
preferential treatment not available to other firms which appear to have the effect of
limiting competition in the coal sector.
3.3.3 Issue 3) According to the Section 11295 of The Coal-Bearing Areas (Acquisition
and Development) Act, 1957, it clear that state-owned enterprises operate in the markets,
receive benefits and preferential treatment not available to other firms. As it is clear that
generally the blocks offered to private players for captive mining are of poor quality and
are not amenable to economic development. Moreover ,the allotment of blocks to
different parties are made on the recommendations of CIL and CIL is also the custodian
of all the coal blocks and it is also, the condition of offering only virgin blocks devoid of
any infrastructural facilities to private players serves more to obstruct the competition
than allow it296.

3.3.4 Issues4 )The Mines and Minerals Development and Regulation Act, 1957 297 it
again grants the exclusive rights to government companies in the grant of

295
Power of Central Government to direct vesting of land or rights in a Government company.
(1)Notwithstanding anything contained in section 10, the Central Government may, if it is satisfied that a
Government company is willing to comply, or has complied, with such terms and conditions as the Central
Government may think fit to impose, direct, by order in writing, that the land or the rights in or over the
land, as the case may be, shall, instead of vesting in the Central Government under section 10 or continuing
to so vest, vest in the Government company either on the date of publication of the declaration or on such
other date as may be specified in the direction. (2)Where the rights under any mining lease acquired under
this Act vest in a Government company under sub-section (1), the Government company shall, on and from
the date of such vesting, be deemed to have become the lessee of the State Government as if a mining lease
under the Mineral Concession Rules had been granted by the State Government to the Government
company, the period thereof being the entire period for which such a lease could have been granted by the
State Government under those rules; and all the rights and liabilities of the Central Government in relation
to the lease or the land covered by it shall, on and from the date of such vesting, be deemed to have become
the rights and liabilities of the Government company.
296
Supra note 127
297
Section 11 A Procedure in Respect of Coal and Lignite. The Central Government may, for the purpose
of granting reconnaissance permit, prospecting license or mining lease in respect of an area containing coal
or lignite, select through auction by competitive bidding on such terms and conditions as may be
prescribed, a company engaged in,-
(i) production of iron and steel;
(ii) generation of power;
(iii) washing of coal obtained from a mine; or
(iv) such other end use as the Central Government may, by notification in the Official Gazette, specify,

122
reconnaissance permit, prospecting license or mining lease to sectors where captive
mining is allowed, to provide coal by restricting private player participation.
―Government is empowered to reserve coal blocks for government companies Moreover
it is silent on the kind of coal blocks that will be put up for auction which again results in
CIL and SCCL are being allocated prime coal blocks while private companies have to
participate in an auction‖. With respect to the Mines and Minerals Bill 2011, proposed
Clause 4(2) ―‘exempts government companies from the requirement of obtaining a
reconnaissance or prospecting licence‖. This grants an unfair advantage to companies
competing to these companies. Further, public sector enterprises also carry out
exploration without the involvement of private players.

3.3.5 Issue 5 ) There is inaccessibility of data on extractable coal reserves and inadequate
data and for private players and it imposes the restrictions on the ability of some types of
suppliers to provide a good or service and firms in the market suffer from the unequal
application of laws or regulations.

3.3.6 Issue 6) Due to nationalization, the various advantages granted to CIL and State-
owned enterprise receiving benefits and preferential treatment not available to other
firms which appear to have the effect of limiting competition in the coal sector.

3.3.7 Issue 7) Further, there is limitation on ability of seller to set the prices for goods
or services further CIL‘s pricing decisions are influenced by Government policies. There
is price distortions and absence of independent regulator. It is clear that the Ministry of
Coal is guiding pricing of coal and there have been various talks of introducing price
reforms in the sector and the impact of monopolistic market structure is accelerated by

and the State Government shall grant such reconnaissance permit, prospecting license or mining lease in
respect of coal or lignite to such company as selected through auction by competitive bidding under this
Action :
Provided that the auction by competitive bidding shall not be applicable to an area containing coal or lignite
,-
(a) where such area is considered for allocation to a Government company or a Corporation for mining or
such other specified end use;
(b) where such area is considered for allocation to a company or corporation that has been awarded a
power project on the basis of competitive bids for tariff (including Ultra Mega Power Projects) .

123
the absence of an independent regulatory oversight. As the presence of an independent
regulator is significant to create a level playing field, introduce competitive price
regulations, boost investments in the sector and to govern allocation of blocks, approve
mines, etc. Over the last few need of establishing an independent regulator has been
widely debated, in 2012 ,the Coal Regulatory Authority Bill has been introduced but The
bill does not give pricing power to the regulator; however, it empowers them to frame
rules and methodologies for determining the price298.

3.3.8. Issue 8 )The under development of infrastructure and transport in effect

reinforces the monopoly status and reduces any potential competition.

3.3.9 Issue 9) This sector is subject to regulations and policies ,that are costly time-
consuming, and frequently change hence creates level of policy uncertainty which in
indirect way causes hindrance to competition .

3.3.10 Issue 10) There is Presence of opaque & flawed policies though in coal blocks
competitive bidding is a part of The Mines and Minerals (Development and Regulation)
Bill 2011 but the delays in shifting from opaque to a more transparent policy for
allocation has caused huge amounts of losses. It is clear from report released by
Comptroller and Auditor General (CAG) of India that huge losses have accrued due to
the inefficient allocation of blocks As per the299

3.4 Competition Issues in Oil and Gas Sector

Recently Union finance minister Arun Jaitley proposed the idea of a mega-merger of
upstream and downstream oil public sector units. In India, both upstream and
downstream can do better with more competition. As a result, the government has done
well to give exploration licences to private and international and small firms.
Accordingly, in the area of oil and gas, while PSUs they are most likely to underperform
in areas like upstream, exploration and production and may give acceptable performance

298
Supra note 15
299
Supra note 15

124
in routine areas like downstream refining and marketing that is the reason as to how in
the downstream, they should do something similarly encourage small refiners who will
break the existing margin benchmark.

In the case of CIT V Enroll Oil And Gas India Ltd300 it was held that “all natural gas
reserves and extracted products shall be controlled by government up until the point of
delivery on terra firma it was also held that power of the government to privatize and
extract natural gas is subject to constitutional consideration and subsidiary instrument
such as the PSC and no private agreement can impinge upon the same”

Thus the allocation norms set by the government , concerning matters of price and
quantity must be abided to by RIL . Further the entitlement claimed by RNRL to certain
quantities of natural gas at privately negotiated rates for pre determined period of time
was struck down by the supreme court in the case of Reliance Industries Limited V
Reliance Natural Resources Limited 301

Generally, it is also argued that the policies of Government in the oil and gas sectors
continue to favour NOCs and other oil PSUs, thereby leading to an effective denial of
market access to other players. For instance, the Government still controls prices of
domestic LPG, public distribution system kerosene, despite the dismantling of the
administered price mechanism for determining and controlling prices in the hydrocarbon
sector, and high speed diesel . The Government controlling domestic prices of these
economically sensitive petroleum products, oil marketing PSUs have had to sell their
products well below cost price. Due to the consequent losses are termed ―under-
recoveries‖ and under-recoveries are offset by way of additional cash assistance allocated
from the fiscal budget from the Government . However on the other hand private oil
marketing companies, are not having the comfort of being compensated for under-
recoveries which in return affects the entry growth plans of private oil marketing
companies . Under this circumstances the competing with PSUs in the oil sector is not
viable. As a consequence of it affects the investment by private players as well. Though

300
(2008) 305 ITR 75
301
(2010 ) 7 SCC 1

125
the CCI has stated that is ―it is taking the route of advocacy with the Government with
respect to the practice of under recoveries by oil marketing PSUs”302

These are the following completive issues in oil and gas sector as given below:

3.4.1 Competition issues in Upstream Segment

In recent past the ministry of Petroleum started to invitation to international bids for
exploration and development that having indirect effect on competition. Till 1997, ―9
rounds of bidding were held and 32 blocks were awarded for exploration and 30 for
development and they produced 3 mtpa of crude and 7 mcmd of gas‖. Nevertheless
distribution and refining sector were subjugated to government monopolies and
licensees had to sell their oil and gas to the government and in this regard negotiations
with the government were protracted. So the rounds attracted little international interest.
As outcome of government monopoly the same could not increase production and
refining capacity according to demand303

Till April 2007, under the NELP, six rounds were conducted and 162 production-sharing
licenses were given, and 53 per cent out of this were to government companies . Further
it is observed that many licensees were sitting on concessions because they did not see a
satisfactory path to profitable exploitation of discoveries. A seventh round of NELP was
started on 1 April 2008 and subsequently, six multinational companies namely
―Chevron and Conoco-Philips of the US, Britain's BG (British Gas) and BP (British
Petroleum), Canada's Niko and Anglo-Dutch Shell‖ wrote to the government to say that
―they would not bid if the regulatory framework remained uncertain and the government
did not adhere to contractual arrangements‖. There are a range of instances of such as
the Enron affair, in which Maharashtra government reneged on a contractual obligation to
buy electricity at a fixed price , second , the government is taking away the contractual
right of the owners of the Panna-Mukta fields such as Reliance, British Gas and ONGC

302
Competition Law Issues In India‘s Oil & Gas Sector – Part 2 available at
https://www.ilntoday.com/2013/03/competition-law-issues-in-indias-oil-gas-sector-part-2/ (last visited Jan
2017)
303
Indicus Analytics ,Public Enterprises, Government Policy And Impact On Competition Indian
Petroleum Industry,( Final Report Prepared for the Competition Commission of India 2009)

126
to sell gas, and compelling them to sell it to GAIL at a price of its choosing to GAIL this
is with reference the exploration contracts, and thirdly is with reference renegotiation of
conditions by DGH ,embodied in the model production sharing contracts issued at the
time of announcement of earlier rounds after bidders had invested money and found oil or
gas. These companies were also of the opinion that ―DGH, which was supposed to acted
to be a regulator which acted more like an arm of the government but the government did
not respond to the six companies‟ concerns as a result they did not take part in it”.
Further it can be seen that there is general disincentive to bidding in the fact and the
bidders have to sell their production in market , which remains a market dominated by
government companies thus it is impossible to be sure that the concessionaire would get
an internationally comparable price for his output. Particularly this is obvious in the case
of ―Cairn Energy, which bought a block in Rajasthan from Shell in 2002 and soon struck
oil and find in Barmer was far from the sea. It could be sold to Indian Oil Coorporation,
but negotiations have not borne fruit till now‖.304.

As the in the field of exploration most of the most of the contract are given to
government companies and very few to the private players hence it can be inferred that
there is little competition for them and lack of level playing field among them. As the
government imposes the restriction the right of discoverer‘s to sell any oil or gas he
finds in the world market, an further there is dominance of government companies in
refining sector too.305

3.4.1.1 Issue related to Absence of an Independent Regulator in the Upstream

Segment

While the Ministry of Petroleum and Natural Gas (―MOPNG‖) is regulating the upstream
segment in oil and gas sector with the technical support of the Directorate General of
Hydrocarbons (―DGH‖), which works administrative control of the MOPNG. Neither the
MOPNG nor the DGH is an independent regulator as downstream and midstream
segments are regulated by the Petroleum and Natural Gas Regulatory Board

304
Supra note 293
305
Ibid

127
(―PNGRB)306.To promote healthy competition with private sector companies in the oil
and gas sectors and avoid conflict of interest situations the regulatory functions should
not be discharged by the Government when it exercises substantial ownership control
over PSUs that as a result dominate the upstream landscape . Additionally in 2006, the
Expert Committee on Integrated Energy Policy had recommended that the regulatory
functions of the State should be separated from the Ministries that control the PSUs
dominating the upstream segment which ultimately hampers the growth of competition307

The role of the as an independent regulator of DGH, is also uncertain as the Expert
Committee on Integrated Energy Policy had also observed that the though in present
upstream segment regulation provided by the DGH which is ―neither independent nor
comprehensive in a technical sense‖. It is observed that that the DGH is not even a
regulator but predominantly an advisory agent of the MOPNG .Recently, reports of
committee of secretaries has, in principle, agreed to reconstitute the DGH as an
independent technical office of the MOPNG and The points mostly remain the alike as
the recommendations of the Chawla committee.308

Hence there is obvious need for an independent regulator, in the upstream segment that
is dominant by PSUs and NOCs, is necessary for a transparent and competitive market
that provide a level playing field to all players , as a consequence of that India opts
added private participation. As government owned companies still dominate, the
liberalization and deregulation process is not complete. As stated in the Integrated Energy
Policy report, ―the regulatory responsibility/functions of the State must be separated from
the Ministries that control the PSUs that dominate the energy sector, and are the
principal owners of over 75% of India‟s energy assets and related infrastructure”309

The rules in the Indian oil and gasoline area had been geared toward encouraging
competition in all segments of the industry. Though the extent of competition however
varies throughout these segments. This segment examine viability of competition

306
Ibid
307
https://www.ilntoday.com/2013/03/competition-law-issues-in-indias-oil-gas-sector-part-2(last visited on
Jan 2018)
308
Ibid
309
Ibid

128
within the oil and gasoline sector in every of the 3 segments namely upstream, midstream
and downstream and furthermore identifies problems that have an effect on competition
in the region.310. Hence the competition issues in relation to specific segment are given
below:

3.4.1.2 Issues in relation to New Exploration and Licensing Policy (NELP) in

Upstream

The NELP has not followed the precedence of favoring the government companies in
exploration contracts as it allowed 100% FDI . Under Round IX ,7 year tax rebate was
given to private players on the proceeds from sales of mineral oi , with aim to increase
their participation and to encourage the competition Table 3, provides overview on the
participation by different players in the last nine rounds311.

Public and Public/Public Private/Private Public/private Total Blocks

private JV companies JV companies JVs
participation in
NELP I –
NELP IX
bidding rounds
Round
NELP 1 8 13 3 24
NELP 2 16 5 2 23
NELP 3 11 9 3 23
NELP 4 11 2 7 20
NELP 5 3 8 9 20
NELP 6 18 17 17 52
NELP 7 18* 17 6 41

310
Supra note 252
311
Anmol Soni, Anomitro Chatterjee , Governance of the Petroleum and Natural Gas Sector in
India: A Status Note, Working paper 15 on petroleum and natural gas, (TERI-NFA Working Paper Series
No. 15 2014)

129
NELP 8 12 14 6 32
NELP 9 7 10 4 21
Total Holdings 104 95 57 256
Table 3

There are lot of procedural and process delay, uncertainty with regard to policy as a
result of that there is unwillingness on the part of private and international player to
participate . As it has been observed by the various stakeholder that there is problem of
delay in clearance of project and no certainty regarding policy of government. These are
also acting as additional factor for restraining them from participation in upstream
segment.

Yet the issue related pricing of natural gas is concern , in the policy the freedom to
decide prices on a competitive bidding and arm‗s length basis has been given but final
approval from the government is still required . Though there is little elasticity to adjust
regulated gas prices in accordance technological development etc. This instance has
become quite clear in the recent ―slew of demands from RIL to raise the price of gas from
its KG-D6 block as the decision to revise the pricing mechanism and prices of natural
gas was taken and the new formula will be introduced starting April 2014.‖312

3.4.1.3 Allocation of resources313

As for as is allocation of resources is concern, allocation of petroleum and natural gas in
India, this can be analysed from two aspects namely ―allocation of acreages for
exploration‖ and the ―allocation of discovered resources‖. In 2011, the CAG in its report
had also spoken about concerns relating to the use of the Investment Multiple
Mechanism in the exploration process and in this reference the government had
appointed an expert group under the chairmanship of Dr C Rangarajan, to study the PSC
mechanism and to propose alternatives to the existing regime. In this reference the
committee has recommended ―doing away with the cost recovery mechanism and
suggested sharing of oil revenue between the government and the operator. Moreover
the government‟s indecisiveness and prevailing uncertainty also affected the

312
Ibid
313
Ibid

130
participation in the energy sector in the country‖. However ,the allocation of gas has
been fraught with issues where the government‗s policy on allocation of natural gas has
changed over the years. In 2007 the amendment was done , when the gas utilization
policy contained a clause in the model contract states ―that the government could frame
the utilization policy from time to time in fact these clauses effectively take away the
freedom of the producers to market gas”.314.

3.4.2 Midstream
The participation of the private players in midstream sector was started in 2002 and the
tariffs in relation to pipeline are based on the principle of common carrier and the sector
is regulated by the PNGRB. In this reference this sector has seen participation from
315
domestic players such as Reliance Gas Transportation Infrastructure limited (RGTIL)
.The concept of third party access or common carries in natural gas pipelines has also led
to a development of the natural gas transmission networks in the country. To provide
access to infrastructure in the sector regarding long-distance natural gas pipelines are by
nature, a natural monopoly and provision of excess capacity for usage by parties other
than the owner/operator, is fundamental316.

There has been rise in the number of participants in oil and gas sector and operators
such as RIL and Essar Oil Limited (EOL) are at present operating large refineries in the
country in the refining sector .This sector has also seen joint ventures between PSUs and
international players such as Oman Oil Company and Mittal Energy Limited. One more
important scheme of the PNGRB towards encouragement of competition in the sector is
the unbundling of the transportation and marketing activities. The PNGRB had circulated
a note, it examines three forms of unbundling which are ―accounting segregation‖, ―legal
separation‖, and ―ownership segregation‖.

314
Ibid
315
which operates the East West Gas Pipeline and one of its subsidiaries, Relogistics, which is in the
process of laying additional pipelines
316
Ibid

131
Various stakeholders who are acting as gas consumers such as Tata Power have
expressed it willingness to support to the proposed unbundling of these two segments.
However, GAIL has opposed it by stating that ―India„s natural gas markets are not
adequately developed, with regulated pricing mechanisms and absence of gas trading
hub and if transportation and marketing activities are unbundled, it would only increase
operation and administrative expenses which would be detrimental to the development of
India„s natural gas market‖. Although in this regard, the Gujarat State Petroleum
Corporation Ltd (GSPC) has accepted the idea but has argued a case for leaving LNG
terminals out of the purview of these regulations. Thus, it appears that the regulator will
have to work hard to arrive at a workable consensus regarding unbundling and third
party access317.

3.4.3 Downstream318
The prices of major products such as diesel, kerosene, and domestic LPG are regulated
by the government and oil marketing companies (OMCs) are required to sell these
products at prices lower than the its cost price or international reference prices, in the
downstream sector. Moreover financial situation of OMCs, and the adverse implication
on the fiscal balances of the economy and on the other hand pricing mechanism has also
harmfully affected the level of participation of private player in the sector. Although
private players are free to sell the products at market prices and it is not easy for them to
compete with the lower prices offered by the government-owned OMCs.

In nutshell it can be viewed, though policies throughout value chain of the oil and natural
gas sector ,have motivated towards encouraging investments from all players and as a
matter of fact, the NELP has come up with this objective in mind. The policy allows for
100 per cent FDI in the sector with zero carried interest for the government. But, the
insecurity in relation to pricing and allocation policy of natural gas acts as a deterrent in
attracting investments from large multinational players. Additionally whereas PSU
companies in the upstream sector have been investing in the exploration and development

317
Ibid
318
Ibid

132
of oil blocks but there is need to improve the technology used for exploration,
particularly in the offshore sector which is not available with the domestic companies.
The control on prices has deterred private players from participating and expanding their
presence in the market in the downstream sector too. Whereas policies and regulations
in all three segments have been made conducive to private investments but the ad hoc
nature of government policies and the prevailing uncertainty have adversely affected the
level of competition in the sector319.

Oil refining and gas sector there is lack of competition in major markets for refined
products as there are major entry barrier into this field. As it clear that government
dominance of user industries and the losses it forces them to make limit their capacity to
pay internationally comparable prices and some of the user firms also suffer from
endemic liquidity problems on account of their poor profitability, and delay payments for
feedstock. Two of such industries are crucial namely electricity, which in other countries
is an important market for gas and furnace oil, and fertilizer, whose preferred feed stocks
are gas and naphtha. Further the electricity industry is dominated by electricity boards
and the prices they charge are determined by the government. Till 2004, they had come
across with vast debts to coal and oil companies320 Then the central government made
the state governments to settle the debts as part of more general financial strengthening
and the centre has the power and influence to force state governments to pay. On the
321
contrary the private companies would not be able to do so. .

Refinery licenses were given to the ―Birla gathering (mutually with Hindustan Petroleum
Corporation, a backup of IOC) in 1988, the Essar bunch in 1993, and Reliance Industries
in 1996. The Birlas' Mangalore refinery was prepared by 1999; it couldn't be begun in
light of the fact that HPC, whom the Birla bunch had taken in as accomplice for its
entrance to advertise, declined to lift the items‖. At long last the Birla aggregate sold off
its 37.38 for every penny stake to ONGC in 2003. The main period of the Reliance

319
Ibid
320
Owing to their unprofitability, they are often short of liquidity and delay paying suppliers of fuel.
321
Indicus Analytics ,Public Enterprises, Government Policy And Impact On Competition Indian
Petroleum Industry,( Final Report Prepared for the Competition Commission of India 2009)

133
refinery in Jamnagar was prepared in 1999. Despite the fact that Reliance got a permit for
oil draws in 2002, it has sold just a little extent of its oil and diesel yield through pumps;
it has traded the mass. In 2007, it looked for and got 100% EOU status. It gave Reliance
obligation free access to unrefined gave it adjusted its aggregate imports and fares.322

In the gas sector unless and until the pipelines of some providers are not interconnected
there will not be no competition as a result of that each players has dominance in case of
supply to their clients who are connected to these piplines Until pipelines of exceptional
providers get interconnected, there may be no competition among them; every has a
monopoly of supply to the clients linked to its pipeline. Its essential pipeline of gas is the
―Hazira-Vijaypur-Jagdishpur‖ pipeline of GAIL which includes fuel output of ONGC
from Gujarat to a chain of electricity and fertilizer vegetation from the Gujarat coast to
Punjab. As its delivery of fuel ran fast , it also started taking Petronet‘s fuel imports
from Qatar. Reliance, got discovered huge fuel offshore within the Krishna-Godavari
area beginning in 2003, has no longer laid pipelines to evacuate the gasoline . As the
center government owns the two markets namely electricity and fertilizers, As in case
of government company it suffer loss than it can get aid from the government but same is
not the case with private companies hence this factor also acting as rider in the energy
sector for competition.

3.5 Competition Issue in Renewable Energy Sector

Since 2008 , renewable energy is gaining momentum in energy sector in India and it is
becoming cost-competitive in comparison to fossil fuel-based generation, as the prices
of solar modules have declined by almost 80%323.Renewable energy is competitive with
electricity from mainstream and conventional source of energy or fossil fuels such as
coal and natural gas . This is run by both namely by various factors in the form of
technology, module prices, and local factors in the form of competition in capital goods,
new entrants, and captive users. As it is clear that competition is having strong force and
India has about 20 wind turbine manufacturers who are producing annually around 11

322
Ibid
323
Supra note 72

134
GW and majority of these companies such as ―Suzlon, Wind World, Inox Wind, Regen
Powertech, Gamesa‖ offer a entire turnkey solution whilst others like Vestas focus on
products. As the Electricity Act, 2003 has supported the development in the sector, is
being amended to bring up new elements such as, enhancement of competition and
reformation in the energy mix. With the aim to reform the distribution business by
segregating the network and supply business, and latter to be opened to other players to
bring efficiency and competition, amendments in this field have been proposed .
Moreover it will permit consumers to select their suppliers by abolishing the existing
barriers to open access.324

Several policies which support the expansion of renewable energy has enacted by the
Government of India such as ―The National Electricity Policy 2005 which ―allows the
SERCs to establish a preferential tariff for electricity generated from renewable sources
to enable them to be cost-competitive”. Hence it can seen from above provision that
policy of preferential tariff has been made which favorable to this sector . Further in this
regard the Tariff Policy 2006 provides fixation of a least percentage of RPO by SERCs,
from such sources after taking into account availability of such resources and its impact
on retail tariffs‖. The Tariff coverage additionally states that ―procurement of renewable
power for destiny necessities will be finished through a competitive bidding method and
inside the long-time period, renewable energy technologies might need to compete with
different assets in terms of complete prices‖. With respect to this effect, the MNRE
started popular bidding documents for grid-connected renewable electricity in December
2012 . The hints for competitive procurement had been framed in section s 63 of the
energy Act, 2003 which states:
“Notwithstanding anything contained in Section 62, the Appropriate Commission shall
adopt the tariff if such tariff has been determined through transparent process of bidding
in accordance with the guidelines issued by the Central Government. While the
allocation for solar has already been done through competitive bidding under the
National Solar Mission and state solar policies, these guidelines seek to also cover all

324
Supra note 78

135
other renewable energy sources, such as wind, small hydro, geothermal, biomass, tidal,
etc”

The provision are on the same lines as drafted by the MoP, which aims to bring
transparency and fairness in allocation, reduce asymmetries in relation to information
among bidders, create competition in the grid-connected renewable energy sector, bring
standardization, and reduction vagueness in the entire process of project allocation.
Additionally the States such as Rajasthan and Karnataka have adopted the competitive
bidding model and state like Rajasthan has announced that ― it may also allow
competitive reverse bidding for wind parks‖325.

As the concept of open access is concern the developers can provide the production to
any third party end user at mutually negotiated rates and as the regulators typically levy a
predefined cess on such sales to compensate the utilities for the loss of high-value
customers. With this regard in some states, the cess is waived off for the promotion of
competition These markets offer an opportunity for sale at a higher margin, and the end
user gains from negotiated lower energy prices for renewable companies.

According to the Report of The Committee on ―Transmission Corridors for Evacuation

of Renewable Power” under the chairmanship of Member (Energy), Planning
Commission‖, it is expected ―that 40% of the cost of strengthening intra-state
transmission network will be required to be provided to states as financial support from
the Centre to the states and equity contribution from the states may be taken as 20% and
remaining 40% of the cost may be raised as debt. The Expert Group remarks that
strengthening of transmission network should be based on competitive bidding‖326.As In
the wind energy sector there was no competition either with respect to tariff fixation or
allocation of sites to the developers and in of this furtherance thirty two stations
identified as potential sites allotted to private developers for setting up wind farms were

325
Supra note 69
326
Report Of Expert Group On 175 GW RE By 2022 ,(National Institute of Transforming India , 2015)
available http://niti.gov.in/writereaddata/files/writereaddata/files/document_publication/report-175-GW-
RE.pdfat (last visited Feb. 2018)

136
not developed within the extended time frame. But in MNRE guidelines, these stations
were not included in the normal list of potential stations as stipulated, thus depriving
potential developers who could be looking for such sites for establishing wind farms of
the opportunity to develop projects. It is also clear that local design and engineering will
play a major role in solar market of India. Moreover the competition from local players
could further reduce systems costs and players global level will see the benefits of
manufacturing locally and specifically for the market in India.

3.5.1 Lack of competitive bidding for allotment of wind energy projects

In the country wind energy contributes around 67 per cent of installed capacity and it is
observed that there was no competition in the wind energy sector either with respect to
tariff fixation unlike JNNSM or with respect to allocation of sites to the developers. In
2015, MNRE stated that in solar energy, the cost per MW came down substantially due to
realistic estimate in India and also due to cost reduction internationally during the last
few years. In the last 20 years in case of wind energy, the cost corrections have already
taken place. Further it is stated competitive bidding route may not lead to better results
as wind being relatively more variable in nature, because it may not be possible to
correctly estimate the generation and grid availability at a particular site. Reply of MNRE
should be considered in the context of the need to address problems linked with infirm
nature of wind energy in terms of accurate forecasting, maintaining grid discipline and
adequate evacuation infrastructure which are plaguing the sector .

In June 2008, the guidelines issued by MNRE on wind measurement involving private
sector stipulated that ―private developers should establish wind farms on lands
categorised as wind farmable site within three years of issue of No Objection Certificate
(NOC) by the respective SNA‖. Additionally the said guidelines provided ―that in
cases where no development takes place even after the prescribed period of three or five
years, the SNA would be at liberty to invite bids for setting up wind power projects from
others‖. When such sites are declared open for others, all data of the site would be treated
as part of NIWE knowledge bank and would be given in the normal list of potential
stations by NIWE. Audit observed that out of 572 stations in which private promoters

137
conducted measurement, 32 stations were identified as potential sites for setting up wind
farms and as these sites had not been developed within the extended time frame of five
years, NIWE should have included them in the normal list of potential stations as
stipulated in the Ministry‘s guidelines. As a result this deprived potential developers of
the opportunity for planning and establishing wind farm.

3.5.2 Issues related to Flexible Demand and Supply Resources: At present as there
are no mechanisms in India to ascertain the amount of balancing resources needed and
how these can be procured and dispatched. High share of Renewable energy require
access to sufficient flexible resources such turbines, hydroelectricity, demand response,
gas etc. to ensure continued stability of the grid at each moment.

3.5.3 Issue in relation viability Gap Funding (VGF): Much like AD VGF is likewise a
ability linked subsidy and does now not focus to long time overall performance. The
traditional premise of a VGF scheme is to lower down the capital price at investment
level. VGF scheme conventional premise of a is to lower down the capital cost at
investment stage resulting in reduced risk perception by lenders, lowering of tariffs and
promotion to the sector. At present , almost unconventional VGF scheme being offered
for solar power projects, VGF payments are spread over a period of 6 years, with an aim
to elicit project performance. Therefore the scheme does not necessarily result in lower
upfront capital costs, and in many cases similar to generation based incentive scheme,
with the exception that VGF amounts are decided through a competitive process, and the
payments are not specifically linked to amount of power generated.

3.5.4 Issue in relation to Dollar denominated tariffs: In an attempt to reduce the cost
of power from the infusion of dollar denominated capital (lower cost debt) as GoI has
been considering allowing dollar denominated. Recently GoI has allowed NTPC and PFC
to conduct dollar denominated bids for 1000 MW each and if successful, go in for
another 10,000 MW each and recently Japanese Yen and Euro denominated bidding may
also be allowed.

138
With reference to the power sector most banks are reaching a sectoral cap and renewable
energy technologies do not have any specific sectoral limits sanctions by the Reserve
Bank of India and The working capital requirement is high in case of wind power
projects. The interest rates 12-14% which is very higher for working capital make Indian
products less competitive in the global market, which offers borrowing rates of 3-4%. As
the wind turbine suppliers are also involved in infrastructure creation for projects and
need to stay invested for longer durations, even up to 4-5 years. Hence costly working
capital creates a lack of a level playing field with global players and indirectly affect
competition as well.

3.6 .Competition Issues in Atomic Energy

Till now, the nuclear power sector has remained the exclusive dominance of the
Government and this is not likely to change in the near future. Nuclear Power
Corporation of India Ltd.(NPCIL) is the only the sole operator of NPPs, there will be
very less private participation in the form of vendors, equipment suppliers, minority
shareholders and contractors. In present scenario the role, functions, and resource base
of the Atomic Energy Regulatory Board (AERB) required to be to be looked again for
meeting the new necessities. Under new scenarios, AERB has to continue to perform its
role efficiently to deal with issues related to nuclear safety, site clearances, plant
operation regulations, inspections, public information, etc This is critical in securing
public confidence and support, both domestic a and foreign, for the nuclear power
programme. India should assure the possible safety in nuclear power so that
competition can also increase in the sector .As It is anticipated that in near future a
substantial portion of demand in the electricity sector will be met by nuclear power
generation.

Hence AERB has to look after shortcoming in the management and should take
decisive action , the first challenge will be to ensure that economic pressures do not
erode nuclear safety. While striving to maintain good nuclear safety culture, AERB will
also need to adapt to an increasingly market -oriented environment and new working

139
relationships with operators327. As it is known that Nuclear power and renewables are not
competitive because there are very few market player and most of them are
government concern and far less mutually exclusive each has its advantages, application
patterns and limitations. When it comes to solar power generation India is in a unique
position, considering the number of sunny days it gets in a year, even then neither solar
nor wind or hydro can be considered as base load power sources. Nuclear stations do not
depend on the wind rose patterns ,rivers, number of sunny days per year, As for nuclear
power, currently KNPP is the most competitive nuclear project in India in terms of the
cost of power produced.328.

The Indian government is place to open up exploration and production of atomic minerals
to private mining companies. Balvinder Kumar, secretary in the ministry of mines, said
that ―It is part of a strategy to increase domestic supplies of fuel as the country readies to
expand its nuclear power generation capacity. India currently has a 5.7 gigawatts (GW)
nuclear power generation capacity, which barely accounts for 2% of the total power
capacity but is expected to witness a sharp increase over the next 16 years as the country
moves away from fossil fuels for its energy needs‖. The Department of Atomic Energy‘s
target is to have 63GW of nuclear power capacity by 2032. Fossil fuels account for 71%
of the electricity output and the government wants to bring it down to less than 60% by
2030 as per its climate change action plan.. Kumar said rules for opening up exploration
of atomic minerals to the private sector will be brought out shortly. Out of the country‘s
1,400 sq. km of atomic mineral-rich area, about 1,000 sq. km along the coast—where
minerals are available below specified thresholds—will be offered for prospecting and

327
S.S. Bajaj, Challenges of Atomic Energy Regulation in Indian Context available at https://ac.els-
cdn.com/S1876610211015165/1-s2.0-S1876610211015165-main.pdf?_tid=6464f556-ed69-11e7-8061-
00000aab0f02&acdnat=1514642437_014c8c06470ee6933f2f4c8f2cc0bf2a (last visited on Dec 2017)
328
Ksenia Kondratieva , Nuclear Power And Renewables Are Not Competitive , available at
http://m.thehindubusinessline.com/economy/nuclear-power-and-renewables-are-not-
competitive/article9760622.ece(last visited on Dec. 2017)

140
production through competitive bids. State agencies will retain rights to operate the
remaining 400 sq. km329.‖

In March 2015,The Mines and Minerals (Development and Regulation) Amendment Act
of 1957, which was amended, provided for the auction of mining leases except for atomic
minerals, for which the government was empowered to frame separate rules. ―We are
now addressing that part that was left out, in order to usher in competition and
transparency in the case of atomic mineral leases. This will help us tap resources that are
available domestically, so that imports can be reduced,‖ said Kumar.

According to the Atomic Minerals Directorate for Exploration and Research, there are
large deposits of uranium in Andhra Pradesh, Jharkhand, Meghalaya, Rajasthan and
Telangana and in some of these states mining are being expanded. Experts, however,
said “private mining firms‟ interest in these leases would largely depend on how reliable
the data available to them on mineral reserves is, how the nascent market for these
minerals picks up and the deftness state administrations show in handling issues relating
to local communities”.

The government by using modern aerial techniques could encourage private investment
330
in reconnaissance activity, including the use of drones, . As India is on the verge of a
nuclear renaissance it is developing competence in wide variety of technologies and
different reactor designs331

3.7 Role of Concession Contract

Infrastructure sector requires huge financial resources and it is not easy to find resources
on such a large scale. In addition to the comparative efficiencies of the government and
private sector to manage infrastructure services also differ. This has led to the greater
acceptance of the concept of Public Private Partnership (PPP) in infrastructure

329
Gireesh Chandra Prasad, ―Mining Of Atomic Minerals To Be Opened Up To Private Sector‖ , The live
Mint (2014) http://www.livemint.com/Industry/ynlt62vMrreF7S0Fv2J35L/Mining-of-atomic-minerals-to-
be-opened-up-to-private-sector.html(last visited on June 2016)
330
http://www.livemint.com/Industry/ynlt62vMrreF7S0Fv2J35L/Mining-of-atomic-minerals-to-be-opened-
up-to-private-sector.html(last visited on July 2017)
331
S.S. Bajaj, Challenges of Atomic Energy Regulation in Indian Context available at https://ac.els-
cdn.com/S1876610211015165/1-s2.0-S1876610211015165-main.pdf?_tid=6464f556-ed69-11e7-8061-
00000aab0f02&acdnat=1514642437_014c8c06470ee6933f2f4c8f2cc0bf2a (last accessed on Dec 2017)

141
development in form of concession contract332.Concession contract proved very popular
and appealing in the developing precisely they promise the greater commitment .In the
past telephone , roads , electricity,, water sewage , garbage disposal , etc has been
financed and operated by government agencies. However late but it was felt that
government sector is not able to cater the needs of the people often delivered the poor
quality and inadequate coverage333 .The past years have gone through essential change in
the thinking of government about infrastructure sector. In various countries whether it is
rich or poor alike private ownership and operation have been replacing public provision,
while monopoly has been providing approach to competition. The concessions contract
have performed a vital role in these changes. The concession documents used to specify
the rights and responsibility of the private firms, at the same time the bidding processes
that have been used to award concessions, has brought more transparency and
competition. 334

In the case of monopoly, competition is essentially infeasible, so the next alternative

available is to allot the right to supply a specified market, known as a concession, through
a competitive process. A concession ―grants the concessionaire party the right to operate
a defined infrastructure service and to receive revenues generated; the ownership of
assets remains with the government‖. Nevertheless, concessions may make a private
monopoly which can be abused. As a result the design of the concession agreement
becomes imperative so that it does not create anticompetitive effect.335.
A concession is mechanism though which competition can be increased . Concession
Contract is ―a contract in which non government entity obtains, from the government, the
right to provide a particular service orobtains the right to control the access to one or

332
Vinod Dhall, Competition Issues in Concessions in the Infrastructure Sector, 2 NCAE R 2 (2006)
333
A Sarda and Ila Singh, Public Private Partnership for Infrastructure Development, 26(3) ,Nagralok,
(July –Sept,2004)
334
Michel Karf and R David Gray, Concession for Infrastructure a Guide to Their Design, World Bank
Technical Paper no .399, Finance Private and Infrastructure Network available at http://www-
wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/1998/03/01/000009265_398042911154
6/Rendered/PDF/multi_page.pdf (last visited on Nov 2015)
335
Vinod Dhall ,Essays on Competition Law and Policy,,2007 available at
http://www.cci.gov.in/images/media/articles/essay_articles_compilation_text29042008new_200807141350
44.pdf(last visited on May , 2017)

142
more infrastructure facilities‖336. According this definition, it is not necessary that
concessions to involve the private sector, because governments can grant concessions to
public enterprises as well . But concessions are usually given to privately owned
companies337.

The term ―concession agreement‘‘ in their wide sense to refer to ―any arrangement or
legal document in which a non-government entity obtains, from the government or a
government agency, the right to either provide a particular infrastructure service, or
control access to whether linked to obligations to develop, construct, renovate, operate
and/or maintain or otherwise) one or more infrastructure facilities, effectively on an
exclusive or dominant basis‖

Hence from the above definition following concepts can be applied to concession
contract338 That firstly, it is an agreement between government and non-government
entity secondly it is in relation to an infrastructure project and thirdly it regulates private
participation 339.

336
Piyush Joshi & Anuradha R.V., Competition Concern in Concession Agreement in Infrastructure
Sector, Presentation at the National Conference on State of Competition in the Indian Economy, June 11-
12, 2009 available at http://www.cci.gov.in/images/media/presentations/pdfJune2009/13.pdf(last visited
on 2017)
337
Ibid
338
Supra note 326
339
The Andhra Pradesh Infrastructure Development Enabling Act, 2001, under s. 2(h) , defines
―concession agreement‖ to mean ―a contract of the nature specified in Schedule I between the Developer
and the State Government or Government Agency or the Local Authority relating to any Infrastructure
Project or such other contract as may be prescribed from time to time by the government.‖ Schedule I lists
the types of structures such as BOT, BOO, BOOT, LROT etc. it should also be noted that this definition is
linked to only ―infrastructure projects‖ which is defined , under s. 2(s) of the Act, as being a project in the
sectors notified by the state government under the Act. The term ―developer‖ is defined under the s. 2(k) of
the Act, as ―any private sector participant who has entered into a contract for the Infrastructure Project with
the Government or Government Agency or Local Authority under the Act.‖ The term ―private sector
participant‖ is defined in s.2(gg) as ―any person other than Central Government or State Government or
Government Agency or any joint venture between Central Government or State Government Departments
or any Statutory Body or Authority or Local Authority or any corporation or company in which the Central
Government or State Government or Government Agency, Statutory Body or Authority or local body is
holding not less than 51% paid up shares.‖ Thus, under the said Act, the concession agreement can be with
any type of legal entity, which is not a government entity. A similar definition of the term ―concession
agreement‖ is provided in the Bihar Infrastructure Development Enabling Act, 2006 (under s. 2(o) of the
said Act)

143
 340
A preferred way of allocation of concessions is competitive bidding . These various
steps of concession agreement come within the authority of the CCI pursuant to section
18 of the Competition Act341 .On understanding the definitions of enterprise342
―practice‖343, ―trade‖ 344
as provided under the Competition Act, it is quite clear that the
practices of a government department relating to the ―distribution, production, supply
storage or control of goods and provision of any services‖ will fall within the ambit of the
duty of the CCI.

The use of concession agreements, can now be easily extended under the principles
enshrined in the Competition Act, 2002, that ranges from creating competition for the
market to a way of preventing abuse of dominance345. The relevant anti competitive
practices in this regard are given below:
 There can be use of dominant position which obtained under a concession
agreement to protect position of entity in another relevant market or
 It may enter into anti competitive agreements or
 It may use unfair or discriminatory conditions on which services are rendered or

340
Piyush Joshi Anuradha R.V., Study on Competition Concern in Concession Agreement in
Infrastructure Sector available at
http://www.cci.gov.in/images/media/completed/ConAgreInfraSect_20100401141506.pdf(last visited on
Nov 2017)
341
Which imposes a duty on the CCI, to inter alia, eliminate practices which are having adverse effect on
competition, promote and sustain competition and protect the interests of the consumers.
342
2 (h) of Competition Act 2002, "enterprise" means a person or a department of the Government, who or
which is, or has been, engaged in any activity, relating to the production, storage, supply, distribution,
acquisition or control of articles or goods, or the provision of services, of any kind, or in investment, or in
the business of acquiring, holding, underwriting or dealing with shares, debentures or other securities of
any other body corporate, either directly or through one or more of its units or divisions or subsidiaries,
whether such unit or division or subsidiary is located at the same place where the enterprise is located or at
a different place or at different places, but does not include any activity of the Government relatable to the
sovereign functions of the Government including all activities carried on by the departments of the Central
Government dealing with atomic energy, currency, defence and space.
343
2 (m) of Competition Act 2002, defines "practice" includes any practice relating to the carrying on of
any trade by a person or an enterprise;
344
2 (x) of Competition Act 2002, defines "trade" means any trade, business, industry, profession or
occupation relating to the production, supply, distribution, storage or control of goods and includes the
provision of any services
345
Since a well structured detailed concession agreement should provide the regulatory framework
including that of monitoring performance, regulating user charges levied by the user and allowing for
termination and damages for defaults , subject to which a developer can exercise its rights.

144
  It may restrict or deny, directly or indirectly access

The Eleventh Five Year Plan stipulates that ―though public investment has to be a large
part of the investment in infrastructure sector. An increase of the requisite magnitude in
field of investment cannot be achieved through only thourgh public investment and
therefore proposes a strategy for infrastructure development which involves a combined
response an increase in public sector investment in infrastructure as a percentage of
GDP, and also an increase in private sector investment through some form of PPP (PPP)
or directly‖346

3.7.1 Rationale Behind Concession Contract in the Field of Oil and Electricity
Sector

Concessions contract should be used in areas which are most likely to support
development such as electricity sector .Though they can be used in any industry and as In
the middle ages it were used in France to license butchers and bakers. They are most
possible to help development when they are used to regulate natural monopolies that is,
services that can be provided more cheaply by a single firm than by two or more347.
There is huge gap between demand and supply which is impossible for the government
to make the good alone so government in 1990s emphasised the creation of
infrastructure both by stepping up by the government and by providing the fiscal
incentive to private sector348.

When they are naturally competitive atmosphere among several firms then markets can
be served efficiently by ordinary competition usually works well. Competitively
auctioned concessions contracts in network industries allow some of the benefits of
competition to be brought to bear in the absence of direct competition between different
346
Chapter 1, Eleventh Five Year Plan (2007-2012), The Planning Commission of India available at
http://planningcommission.nic.in/plans/planrel/fiveyr/11th/11_v2/11th_vol2.pdf(last accessed on 23 rd
April, 2013)
347
Supra note 103
348
P S Palande , Coping with the Liberalization : The Industry ‗s Response to New Competition , 37
,(New Delhi Response Books 2000 )

145
players in the market. For example, a concession awarded in the field of water supply
to the bidder offering to supply water at the lowest price to consumers it encourages
efficiency in ways that parallel the effects of competition in the market. It leads the
producers to offer to sell water at less price. Second, a concession encourages firms to
produce water cheaply, since inefficient firms cannot win the bidding and remain
profitable. Some infrastructure sectors are usually measured the natural monopolies and
the following sectors are most suitable for concession contract which are given as
below:349
 Railway infrastructure
 Roads.
 Water distribution.
 Power transmission and distribution
 Gas transmission and distribution

Concessions contract are not essentially the bad option in these sectors. Though power
generation is potentially competitive in most countries. In those sector, a competitively
granted concession may be the best option.350.

3.8 Role of CCI and Sector Regulators

Generally competition agencies and regulators contribute to issue for efficiency in
relation to economy. Usually various competition agencies focus on objective of
economic efficiency and further provides it precedence over objectives such as
assuring small businesses have in the form fair access to markets. On the other side
regulatory agencies are given broader set of policy concerns which are related to
distribution issues etc. Regulators in energy sector encourage level playing field and
351
also ensure the affordability and reliability of energy services Generally while sector-
specific regulation is adopted situations markets are either inherently imperfect or will

349
Sairam Bhat, Infrastructure Contract, Law of Business Contracts in India, 41 (Sage Publication Pvt.
Ltd. , 2010)
350
Supra note 103
351
Ishita Gupta, Interface between Competition & Sector Regulators Resolution of The Clash of
Regulators,(submitted to CCI , 2012)

146
not produce a desirable distribution of benefits and where intervention of government
is deemed to be required.

Several laws and policies that have been made to regulate specific sectors and it has
provided for the creation of regulatory bodies which are sector specific. Several of these
laws provide the regulatory authority with the aim of promoting competition in the
energy sector and caring the interests of consumers. Crucial issue that will take place in
relation to jurisdiction of the CCI over specific sectors where sector specific regulators
have already been established. The following issues taken into consideration if there is
any potential conflict in jurisdiction between CCI and any sector specific regulator in
relation to competition issues352-
(i) Usually the laws establishing sector specific regulators are not having any
detailed framework governing competition issues hence these laws may make use
of terms such as ―abuse of dominance‖, ―competition‖, ―combination‖ etc,
however they would not have the specific framework that would enable a sector
specific regulator to decide that whether or not there has been violation of
competition principles;
(ii) In general the laws creating sector specific regulators not having provisions
empowering such regulators to issue orders that are needed to resolve competition
issues such as ―orders mandating breaking up of a combination or orders directing
transfer or property from one entity to another‖.
iii) Usually jurisdiction of sector specific regulator may be limited and it would not
cover the entire relevant market in India, as CCI can ‖.

Hence the principles of interpretation of statutes will be adopted in order to resolve any
potential conflicts between sector specific regulators and the Competition Commission of
India . so the first attempt would be to harmonies the both .Further the maxims
―Generalia specialibus non derogant means General things do not derogate from special
things and Generalibus specialia derogant (i.e. special things derogate from general

352
Piyush Joshi and Anuradha R.V, Final report study on Competition Concerns In Concession Agreements
In Infrastructure Sectors(Clarus Law Associates 2009)

147
things‖. Hence by referring to two maxim it can be seen that a special law will prevail
over the general one in spite of that the general one came later . The similar check is
applied if two laws dealing with the same issueare found to have non obstante clause
then in this case the object and policy of the laws will also have to be considered353

3.8.1 Electricity Sector

Central Electricity Regulatory Commission has been created at the national level under
the Electricity Act, 2003 .Further each state is required to either form its own state
electricity regulatory commission354 or section 83 of the Act 355 and Section 79356 of the
act deals with power of central electricity board for promotion of efficiency ,
competition etc. According to section 79 of the Act sates that other functions of the
CERC relate to tariff or issuance of certain licenses or adjudication of disputes relating to
357
tariff. Under Section 86 of the Electricity Act state regulatory bodies are also given
similar power with regard to competition.

Under s. 60 of the Electricity Act, 2003, power of the CERC and SERC that would come
conflict with the CCI that the power of the CERC and SERC to issue ―such directions as
it considers appropriate to a licensee or a generating company if such licensee or
generating company enters into any agreement or abuses its dominant position or enters
into a combination which is likely to cause or causes an adverse effect on competition in
electricity industry‖. under the Second Proviso to s. 62(1)(a) of the Electricity Act,
2003358 the CERC or SERC has been given with the discretion to fix only maximum

353
Ibid
354
S.82 Electricity Act, 2003
355
S.83 Electricity Act, 2003 says to enter into an arrangement with other states to have a joint electricity
regulatory commission that would have jurisdiction over such states
356
79(2)(ii) Electricity Act, 2003 The Central Electricity Regulatory Commission has been given the
function of advising the Central Government in relation to promotion of competition, efficiency and
economy in activities of the electricity industry
357
The State Electricity Regulatory Commissions commissions have been given the function of advising
their respective state governments in relation to promotion of competition, efficiency and economic in
activities of the electricity industry
358
62(1)(a) of the Electricity Act, 2003 ,says that the CERC or SERC as the case may be has been vested
with the discretion to fix only maximum ceiling of tariff for retail sale of electricity in case of distribution
of electricity in the same area by two or more distribution licensees, for the purposes of promoting
competition between the distribution licensees

148
ceiling of tariff for retail sale of electricity for the promotion of competition and this
function is in conflict with the powers of CCI as it is particularly limited to exercise of
tariff fixation powers . In case of actual conflict of jurisdiction between CCI and CERC
or SERC the following considerations are to be taken into consideration359-
(i) The CERC and the SERC both are not actually having jurisdiction to issue directions
in electricity sector and only the CCI is only having overall jurisdiction in relation to
competition law issues
(ii) Under The Electricity Act, 2003 there is not specific framework for the CERC or
SERC for deciding the abuse of dominant position , combination or agreement causing
adverse effect on competition in the electricity industry and orders in this regard can be
passed and enforced only under the framework provided by the Competition Act, 2002.
(iii) As the Electricity Act, 2003 does not have detailed framework relating competition
hence for these issue Competition Act would come into play .
(vi) S. 175 of the Electricity Act, 2003360 says that provision of this section has to read
in addition not in derogation .As a result, the Under s. 60 Electricity Act, 2003, function
of CERC of SERC will have to be read in consonance and in addition and it is not to be
taken in derogation of the Competition Act, 2002.
In the case of Global Energy Ltd anr.v. Central Electricity Regulatory Commission361, it
was laid down that ―rule making power conferred upon regulatory commission is only
to see that rule making power conferred upon the regulatory commission is only to see
that regulations are framed in exercise of its statutory power for carrying out purpose
of electricity act . This was held to be general delegation and was incapable in laying
down any guidelines. That being so the court had held that regulations making power
cannot be exercised by regulatory commission so as to bring into existence substantive
rights or obligations or disabilities upon the captive generating plants which are not
contemplated in the terms of provisions of Electricity Act 2003”

359
Supra note 74
360
S. 175 of the Electricity Act, 2003, which states that the provisions of the Electricity Act, 2003 are in
addition to and not in derogation of any other law for the time being in force will be applicable.
361
( 2009 ) 15 SCC 570

149
The electricity sector in India has observed some troubles regarding overlapping of
jurisdictions and in this regard CCI issued notices after finding leading power
distributors namely BSES Rajdhani Power, BSES Yamuna Power and North Delhi
Power Ltd (NDPL) guilty of abusing their dominant positions. Nevertheless, it is reported
by the Delhi Electricity Regulatory Commission (DERC), that ―CCI„s intervention was
not considered in good light as it believes such matters to be exclusively under their
domain pursuant to the powers vested in them by the Electricity Act, 2003.‖362.

3.8.2 Oil and Natural Gas Regulator

Under the Petroleum and Natural Gas Regulatory Board Act, established the Petroleum
and Natural Gas Regulatory Board (PNGRB) and it regulates oil and gas sector. It was
constituted regulate ― The refining, processing, storage, transportation, distribution,
marketing and sale of petroleum, petroleum products and natural gas‖.

The some of the power which are given to PNGRB are overreaching with those of the
competition authority. Under section 11 of the Act, part of its mandate includes
protecting the interest of consumers by fostering fair trade and competition amongst the
entities.363

Study on competition concerns in concession agreements in infrastructure sectors states

that ―The Petroleum and Natural Gas Regulatory Board, 2006 creates the Petroleum and
Natural Gas Regulatory Board to: (i) regulate the refining, processing, storage,
transportation, distribution, marketing and sale of petroleum, petroleum products and
natural gas excluding production of crude oil and natural gas; (ii) protect the interests of

362
(1) Where in the course of a proceeding before any statutory authority an issue is raised by any party
that any decision which such statutory authority has taken or proposes to take is or would be, contrary to
any of the provisions of this Act, then such statutory authority may make a reference in respect of such
issue to the Commission.
(2) On receipt of a reference under sub-section (1), the Commission shall give its opinion, within sixty
days of receipt of such reference, to such statutory authority which shall consider the opinion of the
Commission and thereafter, give its findings recording reasons therefor on the issues referred to in the said
opinion.]

363
Supra note 341

150
consumers and entities engaged in specified activities relating to petroleum, petroleum
products and natural gas; (iii) ensure uninterrupted and adequate supply of petroleum,
petroleum products and natural gas in all parts of the country and (iv) to promote
competitive markets.‖

The provisions of PNGRB Act that can overreach with the functions of the Competition
Commission are: Section 11(a) PNGRB Act364 and Sections 11(e)(i) and (iii) PNGRB
Act365 Sections 11(f)(iii) and 11(f)(vi) PNGRB Act366

To stop restrictive trade practice in respect to petroleum products and natural gas the
regulator in this sector is given power to supervise the prices and take remedial
measures The Act also defines a restrictive trade practice means -
―a trade practice which has, or may have, the effect of preventing, distorting or restricting
competition in any manner and in particular: (i) which tends to obstruct the flow of
capital or resources into the stream of production, or (ii) which tends to bring about
manipulation of prices, or conditions of delivery or to affect the flow of supplies in the
market relating to petroleum, petroleum products or natural gas or services in such
manner as to impose on the consumers unjustified costs or restrictions.‖

Regulations in relation to common carrier principle, where players share common

infrastructure for essential services as a way of encouraging competition and avoiding
unnecessary duplication, which might also influence the level of competition. The main
aim behind the Petroleum and Natural Gas Regulatory Board Act, is to promote
competitive markets and protect the interest of consumers by fostering fair trade and
competition amongst the entities367.

364
Provides that the Petroleum and Natural Gas Regulatory Board shall ―protect the interest of consumers
by fostering fair trade and competition amongst the entities‖.
365
Provide that the Board shall regulate, by regulations, access to common carrier or contract carrier so as
to ensure fair trade and competition amongst entities and for that purpose specify pipeline access code, and
shall also regulate access to city or local natural gas distribution network so as to ensure fair trade and
competition amongst entities as per pipeline access code.
366
Provide that the Board shall also, in respect of notified petroleum, petroleum products and natural gas,
monitor prices and take corrective measures, and monitor transportation rates and take corrective action, to
prevent ―restrictive trade practice‖ by the entities.
367
Supra note 312

151
Section 20(5) of the Act368 also provides while declaring the gas pipeline to used for
common carrier it shall take into consideration the concept of competition.
369
Section 21 PNGRB Act states that when pipeline are laid down board shall take into
consideration the concept of fair competition in the market.
370
Section 22(2)(a) PNGRB Act while laying down the regulation also competition has
to be taken into consideration . Further Proviso to Section 28 PNGRB Act371 it deals with
imposition of civil penalty for restrictive trade practices .

3.8.3.CCI and Coal Sector

As it is clear from previous discussion that coal sector in India is mostly public owned
and only few private players are there . In this scenario the role of the CCI is very
restricted in relation to competition. The provision with regard to ‗Anti-competitive
agreement‘ and ‗Regulation of Combinations‘ under the Competition Act, 2002 are not
applicable to the Indian coal sector at the moment as in domestic commercial mining
segment there are very few private players. Some practice adopted by CIL indicates
that , CIL would possibly abuse its dominant position in the coal sector . In this regard
CIL started sale of coal via e-auction at price premium which was noticed by the
Supreme Court, which imposed a ban on it in January 2006. Though, after some time CIL
in new form started e-booking in which coal is being offered on ‗first-come-first served‘

368
Provides that while exercising its powers to declare an existing pipeline for transportation of petroleum,
petroleum products or natural gas or an existing city or local gas distribution network , as a common carrier
or a contract carrier or to regulate or allow access to such pipeline or network, the Board shall be guided by
the objectives of promoting competition among entities, avoiding infructuous investment, maintaining or
increasing supplies or for securing equitable distribution or ensuring adequate availability of petroleum,
petroleum products and natural gas throughout the country and follow such principles as the Board may, by
regulations, determine in carrying out its functions under the said section.
369
States that where a pipeline has been laid down, built, operated or expanded by one entity, that entity
shall have the right to first use with respect to that pipeline. The remaining capacity of the pipeline shall be
used by other entities as determined by the Board having regard to the needs of fair competition in
marketing and availability of petroleum and petroleum products throughout the country.
370
provides that for laying down, by regulations, the transportation tariffs for common carriers or contract
carriers or city or local natural gas distribution network and the manner of determining such tariffs, the
Board shall be guided by, inter alia, the factors which may encourage competition, efficiency, economic
use of the resources, good performance and optimum investments.
371
empowers the Board to impose civil penalty for, inter alia, restrictive trade practices, of an amount that
may extend to five times the unfair gains made by the entity or ten crore rupees, whichever is higher

152
basis with a 30% mark-up on the declared price and it imposed a discriminatory
condition in relation to sale of goods. It appears to be case of ‗abuse of dominant
position‘ by CIL . Here CCI under Section 4 of the Competition Act 2002 CCI can play
an crucial role here under and it can also play its advocacy role by advising the Central
Government on competition issues. Further it can convince the Government in
expediting the passage of the Coal Mines (Nationalization) Amendment Bill, 2000 and
making amendments to remove various provisions which are arbitrary and
discriminatory provisions against private players372

In the case of Indian Oil Corporation Ltd. & others vs. Reliance Industries Ltd.
373
&others, Reliance Industries Ltd filed a complaint its against some public sector
undertaking namely namely Indian Oil Corp Ltd, Bharat Petroleum Corp Ltd and
Hindustan Petroleum Corp Ltd which had actually formed a cartel in the supply of
aviation turbine fuel to Air India. However, meanwhile the companies filed an
application at the Delhi High Court, challenging the jurisdiction of CCI for deciding the
issue and it was alleged by these companies that however case is related competition
issue but here PNGRB as being sector specific regulator , which implies that CCI is not
having jurisdiction High Court ruled that-

―CCI did not have jurisdiction, although it is quite apparent that PNGRB does not have
any tight regulations to deal with cartels. As mentioned previously, the PNGRB Act also
mandates the regulator to protect the interests of consumers by fostering fair trade and
competition among the entities„ operating in the sector, which can be construed as being
an adequate tool to regulate all competition issues, particularly by ill-informed decision
maker‖.

In other case also it was held that Shri Neeraj Malhotra, Advocate vs North Delhi Power
Ltd. & Ors. Main 374

372
Supra note 312
373
Appeal No. 50 of 2009
374
CCI ,CASE NO. 06/2009

153
―BSES Rajdhani Power, BSES Yamuna Power and North Delhi Power Ltd (NDPL) guilty
of abusing their dominant positions, which among other things resulted in 90% of the
meters installed by these power companies being faulty, showing a reading that was
2.5% higher than necessary. However, it is reported that CCI„s intervention was not
considered in good light by the Delhi Electricity Regulatory Commission (DERC), as it
believes such matters to be exclusively under their domain pursuant to the powers vested
in them by the Electricity Act, 2003. It can also be established that jurisdiction cases due
to overlaps in regulations also existed during the MRTP era‖

Statutory provisions suggesting concurrency in The Competition Act, 2002 are ,Section
18375 deals Duties of Commission , Section 21376 regarding reference by statutory
authority Section 21A377 ,in relation to Reference by Commission .Section 49378 in

375
Subject to the provisions of this Act, it shall be the duty of the Commission to eliminate practices having
adverse effect on competition, promote and sustain competition, protect the interests of consumers and
ensure freedom of trade carried on by other participants, in markets in India: Provided that the Commission
may, for the purpose of discharging its duties or performing its functions under this Act, enter into any
memorandum or arrangement with the prior approval of the Central Government, with any agency of any
foreign country
376
(1)Where in the course of a proceeding before any statutory authority an issue is raised by any party that
any decision which such statutory authority has taken or proposes to take, is or would be, contrary to any o
the provisions of this Act, then such statutory authority may make a reference in respect of such issue to the
Commission.
(2) On receipt of a reference under sub- section (1), the Commission shall, after hearing the parties to the
proceedings, give its opinion to such statutory authority which shall thereafter pass such order on the issues
referred to in that sub- section as t deems fit: Provided that the Commission shall give its opinion under this
section within sixty days of receipt of such reference
377
―(1) Where in the course of a proceeding before the Commission an issue is raised by any party that any
decision which, the Commission has taken during such proceeding or proposes to take, is or would be
contrary to any provision of this Act whose implementation is entrusted to a statutory authority, then the
Commission may make a reference in respect of such issue to the statutory authority:
Provided that the Commission, may, suo motu, make such a reference to the statutory authority. (2) On
receipt of a reference under sub-section (1), the statutory authority shall give its opinion, within sixty days
of receipt of such reference, to the Commission which shall consider the opinion of the statutory authority,
and thereafter give its findings recording reasons there for on the issues referred to in the said opinion.
378
(1) In formulating a policy on competition (including review of laws related to competition), the Central
Government may make a reference to the Commission for its opinion on possible effect of such policy on
competition and on receipt of such a reference, the Commission shall, within sixty days of making such
reference, give its opinion to the Central Government, which may thereafter formulate the policy as it
deems fit. (2) The opinion given by the Commission under sub- section (1) shall not be binding upon the
Central Government in formulating such policy. (3) The Commission shall take suitable measures, as may

154
relation to Competition advocacy and Section 60379 aims to have overriding effect
and Section 62380 which states that application of other laws not barred.



be prescribed, for the promotion of competition advocacy, creating awareness and imparting training about
competition issues
379
The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in
any other law for the time being in force
380
The provisions of this Act shall be in addition to, and not in derogation of, the provisions of any other
law for the time being in force.

155