The Challenge of Coal Reform in India

There’s a general consensus in the Indian coal sector that reform needs to take place. It’s just a matter of working out how to do it. IHS Coal has more.
By: IHS Energy Publishing
 
BRISBANE, Australia - Aug. 22, 2013 - PRLog -- All bets are off.

This week, the Indian government announced it was scaling back the proposed disinvestment of an additional 10% in Coal India Limited (CIL), the country’s largest, near monopoly coal producer.  

When CIL listed in 2010 the government offloaded 10% of the company in what was the country’s largest ever IPO, valuing the entire CIL at close to US $35b at the time.  

The government had projected raising $6.7b from incremental disinvestments in state owned companies and CIL was expected to account for half of that through the 10% stake.

Opposition against the CIL disinvestment had been fermenting long before the second round of disinvestment was announced. Over the year, it appeared to gain traction and support.

Opposition to the increased investment had been led by all of the five trade unions representing CIL workers. The five trade unions each have affiliations with different political parties. In a show of strength last February, the unions staged a two day strike that halted production in all of the CIL mines. Since then, the unions have managed to retain unity and have continued to galvanize their members into action.    

The unions have a litany of complaints. Most of them focus on working conditions, job security and automatically indexed wages. They do have some broader goals they claim are looking out for the company’s and national interest, such as demanding that all non-performing coal blocks awarded to other companies be returned back to CIL.  

But it is clear the unions are against the very idea of CIL disinvestment. They see it is a back door method to the ultimate privatization of CIL. They have threatened a three day strike in August unless the decision is reversed.

After weeks and months of posturing, the government appears to have relented. The Union Minister for Coal, Sriprakash Jaiswal, announced midweek that the government was preparing to scale back the size of the disinvestment to 5%.

But that alone may not be enough. Subsequent to the Minister’s announcement, several reports said that the trade unions had turned down the offer. The unions have already called the Minister’s bluff once before on this episode.

When the standoff first began, government indicated that they would only negotiate with the unions if the unions guaranteed that they would not go through with the strike. The unions declined. Government then blinked and began negotiating anyway.

With hopes of a negotiated outcome between government and unions looking

increasingly unlikely, a variety of proposals are now making the rounds. Some of the proposals are suggesting that government proceed with the disinvestment but that the shares should be sold to state owned enterprises. That’s a bit like simply passing things from one hand to the other hand.

Other reports are suggesting that government disinvest 5% and CIL will buy back 5% of the shares so that government is able to meet its overall fiscal target. For CIL, the buyback would not be too much of a strain considering the firm is sitting on cash reserves of about $12b.

Yet another set of proposals suggests the government should disinvest but that the shares should be sold to other government agencies. The state of Tamil Nadu, for instance, has offered to buy the CIL shares. Earlier this year, this proposal got a boost from the Securities Exchange Board of India (SEBI), the market regulator on the stock exchange, when it granted Tamil Nadu the right as a Qualified Institutional Buyer to purchase all of the 5% shares that the central government was proposing to offload from its holding in Neyveli Lignite Corporation (NLC).

All of these alternate proposal to the CIL disinvestment are illuminating because they try to strike a fine balance between allowing government to meet is disinvestment goals while also appeasing the labour unions. The alternate proposals are clever. But fundamentally, they are not disinvestments from government ownership into public ownership.

The CIL disinvestment saga is a perfect illustration of the challenge of reforming the coal sector. It is clear that as the near monopoly supplier, CIL is at the heart of the sector. There is widespread consensus that CIL needs to be corporatized, modernized and reformed. In addition, there is widespread consensus that structural changes within CIL will kick-start deeper, more sustained reforms into the broader coal sector and encourage greater private participation.

But some 350,000 union members of CIL don’t see it that way. For them, disinvestment is a threat to their livelihood and a risk to their job security.

That’s the thing about reforms in the Indian coal sector: there is widespread consensus on the need and type of reforms that need to be implemented. Now, if only the country could figure out a way of getting it done.        

For more news and analysis on the Indian coal and power industries, subscribe to Energy Publishing’s Indian Coal Report.  With staff on the ground in India and the benefit of experienced journalists and analysts across the Asia Pacific region, the Indian Coal Report offers the latest news, in-depth analysis, market briefs and freight indices.  Contact us at epi.coalinfo@ihs.com or visit http://www.coalportal.com/ for a free trial subscription.
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Source:IHS Energy Publishing
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