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Restructuring Coal India: Pros and cons

Can Coal India be restructured into smaller independent units, in order to ensure serious competition and to ensure production and development of coal resources in the country?

According to statistical data available, Coal India is heading towards a fall in production during this fiscal, ending this month, when it may find that it has fallen short by about 10 million tonnes. All indications are that it may barely touch about 482 million tonnes.

The estimated daily production is 1.7 million tonnes. There was fear that the strike notice given by its officers, who thankfully, was called off, would have resulted in loss of 5 million tonnes of coal. Earlier, of course, cyclone Phailin did cause production delays due to flooding, but, more importantly officials have claimed that three power utilities refused to pickup coal saying that they have sufficient stocks on hand, which resulted in lower production!. To some extent, this must be accepted.

There appears to be some problems relating to the issues raised by the officers' association, which had threatened to go on this strike. Explaining the reasons, VP Singh, President of the Coal Miners Officers' Association, stated that the major issues that remained unresolved for years cover: revision of pay; releasing performance related payments and implementation of New Pension Scheme.

In fact, the performance related payment, which was agreed upon in 2007 has not been implemented (released) for the last 6 years due to administrative delays on the part of the Union Ministry of Coal and, of course, the Coal India Ltd itself. How does one expect put his heart and soul in the job, when agreed payments are not put into effect, for years on end? According to VP Singh, the arrears of performance related payment and terminal benefit of nearly Rs1,000 crore (since the wage agreement in January 2007) is still to be cleared! It is needless to point out that no one can run such a mammoth organisation with unhappy set of workers.

There has been one other major issue that has plagued the relation between NTPC (National Thermal Power Corporation) and Coal India Ltd relating to poor quality of coal supplied, and being charged at a higher rate, bearing in mind the caloric values of coal delivered. NTPC buys a little more than 140 million tonnes of coal and supplies have been coming from both Eastern coalfields and Mahanadi coalfields.

Because of the quality issue, NTPC had held up payments, withholding as much as Rs3,035 crore against coal supplied; after series of discussions and the introduction of third party sampling and strict enforcement of "cash and carry" mechanism by Coal India in October 2013, NTPC cleared dues since then, but no decision could be made on the old dues. Finally, in the meeting held on 6th March both the companies decided to settle remaining dues based on sampling results at every mine's end for the previous 3 months. This reconciliation exercise is expected to be over this fiscal. It was found that the higher grade slippage (about 7.5%) occurred from supplies emanating from Eastern Coalfields.

For CIL, NTPC's business worth Rs32,000 crore could not be compromised at any cost.

CIL carries enormous responsibilities in ensuring timely supply of quality coal to its various consumers. Movement logistics, faster clearance at pit heads and overall evacuation of coal and delivering the same to consumer point are essential for not only its own survival, but can jeopardize national plans.

For instance, captive power plants continue to face coal supply crunch. Press reports indicate that there are 382 captive power plants' applications for 40,000 MW capacities are pending with various ministries, such as Coal, Power and Central Electricity Authority. It is reported that Rahul Sharma, Chairman of Indian Captive Power Producers' Association (ICPPA), has pointed out that fuel scarcity is hampering investments of over Rs2 lakh crore directly in these captive power projects, while another Rs80 lakh crore in end-user industries.

After all, if the captive power producers could have a direct and uninterrupted supply of fuel (coal mostly), the power generated could be supplied to where the demand is and will greatly reduce the burden on the national grid. So, all the subsidiary units of Coal India have to be geared up to increase their production at all costs.

There have been problems relating to allocation of coal blocks, their withdrawal, and the lack of mining activities in some of these, due to reasons beyond the control of the allottee, such as lack of various ministerial clearances. In fact, there have been debates and discussions if such a large responsibility must vest with one organisation. So much so, that the Government of India appointed Deloitte to study this issue.

In fact, Deloitte made an extensive study on the possibilities of Coal India being restructured into smaller independent organizations, in order to ensure serious competition and to ensure production and development of coal resources in the country, from existing, known mines, which are all subsidiary units of CIL.

It was reported that, once the Union Government received a substantial dividend of 290% (an interim one, at that), they shelved the idea of restructuring, though, the Coal Minister Sriprakash Jaiswal told the presspersons, on the sidelines of the inaugural session of the 5th Asian Mining Congress and International Mining Expo (IME 2014), last month, that the Deloitte report is still under study of the Ministry. Though many major internationally reputed miners were conspicuous by their absence, there was interest shown by those who joined the Expo.

Poland, who has fairly long years of experience and mining technology has shown keen interest in participating in India.

Looking at the great responsibility that CIL carries on its shoulders, it may be worthwhile for the Ministry of Coal in particular, and government in general, to consider the recommendations made in the Deloitte report and make it public for serious discussion and debate.

It would greatly depend upon the new government that may take over after the elections, but, privatising the coal mines into independent companies would be one avenue for increasing our coal production and reducing our imports.

Second, would be to invite direct foreign participation by reputed international companies, by specific invitations, would result in increased production and introduction of most available advanced technology and machinery.

This is some food for thought.

Source" Moneylife