COAL INDIA NEEDS TO BE RESCUED – NITI AAYOG SHOWS THE WAY!

By Ruma Dubey

The Children’s Investment Fund (TCI), a UK based hedge fund, way back in 2012, while holding just 1.1% stake in Coal India while Govt held 90%,  had created a huge furor as it threatened to sue CIL for bowing down to the sarkar, the Govt, when it came to pricing. It had substantial evidence to backup the pressure tactics used by the Govt on CIL. It had obtained an official letter under the Right to Information Act, where Mr. Alok Perti, the then Coal Secretary,  had written to then CIL Chairman, Mr.N C Jha, ordering him to reduce coal prices “latest by 31st January 2012.” Further, in a notice sent to the Finance Ministry, TCI had, “"The Republic of India's recent conduct with respect to CIL has seriously impaired the business activities and operations of CIL and has contravened each of the treaties."

Well, nothing happened. The Govt simply did not bother and the exasperated fund completely quit from the company, selling its stake. All the issues it raised then continue to remain the same and CIL is still a state monopoly with almost no independence from its political bosses.

Thus in this backdrop, the proposals made by NITI Aayog seem spot on. The gist of the report states that this behemoth, which fuels 70% of India’s power needs, should convert its seven subsidiaries into independent companies and be allowed to compete against each other in the open market. Each can work as a profit center and by splitting into seven units, authority can be decentralized. And this split, the Govt wants to complete in 12 months. Now that’s a tall task given the fact that we do not even manage to get an IPO going in a year’s time!

The NITI Aayog has further proposed that fresh coal production should come from the private sector mines and the entire process of allocating coal blocks to independent companies needs to be overhauled. It has talked about the pricing process too, urging the Govt to end the current pricing mechanism used for selling coal to power units. Coal to power sector is sold at subsidized rates compared to the market price in order to facilitate power companies to be able to sell their electricity at subsidized rates. But it is this very practice of subsidized pricing which leads to lower coal productivity and promotes inefficiency in coal mining.

In fact NITI Aayog has stated that the Govt can protect vulnerable electricity customers through direct benefit transfer in the unlikely event of any increase in price of coal for generation companies.

NITI Aayog has stated, “Coal India sets prices that are significantly higher than the implicit cost of mining by the independent power producers. Given its monopoly on coal, CIL is able to pass higher costs to coal buyers and thus has no incentive to contain costs. In the medium to long run, it is essential that we move away from this opaque coal economy and introduce greater competition in it.”

Talk about any reforms and be assured that the trade union will always oppose. The report was published yesterday and today already statements have come from CIL’s union that it will be opposing the recommendations made by NITI Aayog. The same union, in 2014, had not allowed a similar proposal to go through in 2014.

Talking about trade unions, CIL in many ways is a white elephants as its employee count stands at a staggering 3,50,000 – the second biggest employer in India. Yet, its output-per-man shift is estimated at one-eighth of Peabody Energy, the world’s largest private coal producer. Will the same opposing trade union ever think that it is its responsibility to enhance efficiency of the body it represents?

The proposals made by NITI Aayog should be accepted as it will actually save the company; today it is what it is only because of the monopoly it enjoys. It is shameful that CIL is the third largest coal producer in the world and yet, we need to import coal, never meet production targets, which in turn does not allow power companies to meet their energy targets.

If the purpose of getting PSUs listed is to merely raise money while the Govt continues to ‘run’ the companies based on politics and vote bank, why do we invest in PSUs at all? Today, we criticize so many private sector promoters for trampling over the interest of minority shareholders, twisting things for their own benefit, then how different is the Govt of India as a promoter? In terms of corporate governance, this quality of management is indeed the pits!

Hope the trade unions at CIL see’s light and the Govt is able to aggressively push its way through. Coal India needs to be rescued and NITI Aayog has shown the right way. The trade unions need to know this or else they may have nothing to fight for in years to come.