Interview: Nirmal Chandra Jha, acting chairman, Coal India

Nirmal Chandra Jha will go down in the history of Coal India as the only official who retired as acting chairman. Dubious credit, however, goes to the government for keeping several institutions, including Coal India, headless for so long that crucial decisions have been delayed.

Jha, who has been serving as Coal India’s technical director, was given the additional charge of chairman-cum managing director in March last, four months after the near-monopoly miner went public.

The IPO put the workings of Coal India and all its nine subsidiaries  — such as grappling with overbearing bureaucracy, environmental issues and a collective burden of close to four lakh workers — under full public glare.

From the height of investor frenzy (which had put the public sector undertaking briefly in an enviable position of the most valuable listed company) to the lows following zero output growth and
successive price hikes, Jha has seen it all.

In an interview with DNA, he holds forth on issues like how risk-averse independent directors frustrated Coal India’s acquisition plans many a time, his vehement defence for not breaking up the firm (a demand that has been gaining strength of late), and, of immediate importance, how his exit tomorrow might delay a major overseas acquisition approval.

Are you going to take a decision on the offer from the local government of Limpopo in South Africa on mine acquisition in your last board meeting of Coal India as disclosed by you earlier?
No. This would be my last board meeting and I would not like to take such a critical decision. The Limpopo offer is still live but the proposal has to go to the board and it has to take a decision, probably after the new chairperson takes over. Again, there would be issues of risk as it is a foreign acquisition, which people are not comfortable with.

Is there any update on Mozambique venture where efforts to start mining operations got delayed?
We are sending a team to Mozambique, which will remain stationed there for a year. We had acquired two blocks there. There were some delays. We had earlier floated tenders for drilling and twice the tenders got delayed. So we have decided that when we set up our office there, then our people will do tendering there only and look for a local party who can immediately mobilise and start. Whatever offers had come so far are from Indian parties, who would have taken a lot of time in mobilizing resources. They might have even gone in for local tie-ups and we had to pay more money.

There is this thinking in the ministry that in order to manage the coal assets better and raise production, breaking up Coal India into separate, independent and manageable companies, is an option. Has there been any communication from the ministry to this effect?
I haven’t received such communication. But I think if the companies are made independent, the coal ministry will itself have a huge lot of problems. If the ministry wants to separate the subsidiaries, then another Coal India has to be created. For managing the coal sector, having captive blocks, managing companies like Singareni Collieries and Neyveli Lignite, Coal India is essentially required. If Coal India isn’t there, then an organisation like Coal India has to be created within the ministry. Otherwise, they wouldn’t be able to manage the large number of companies in the sector. Maintaining the structure of Coal India is very much essential. If Coal India had not been there, then the different companies wouldn’t have grown like this. It wasn’t possible. And, in order to fix targets, monitor, create policies, bring in uniformity of price, an organisation like Coal India is necessary.

Those who keenly follow Coal India point to the inherent weakness in the board and allege that the number of members is low, and that when the board meets, not many members turn up. Do you subscribe to this view?
The Coal India board has 14 members. And every time the quorum is more than two-thirds in board meetings. Attendance is not a problem. The basic problem, however, is taking a decision. In many cases, we find that independent directors don’t want any proposals which have certain risks. They don’t want to take any risk. Take foreign acquisitions. We had several proposals. On many proposals, no decision could be taken. What I have found is that directors are generally apprehensive of risks and they feel that if they take decisions now, something will come up later and everybody would be questioning. So it’s better to avoid taking decisions. This is the general sentiment that has developed in everybody, making them scared of vigilance, the Central Bureau of Investigation and other agencies, and making them hesitant.

The coal minister has said Coal India would come out with the revised prices by January 31. Is that a deadline you are sticking to?
By the end of this month, we have to decide. Various permutations have to be worked out and then to be discussed with the coal ministry, like we did during our past exercises. It is not that it was unilaterally declared. But now that there are reactions from certain segments of consumers, we are taking a relook.
But let me tell you that switching over to GCV (gross calorific value) has been done, it can’t be retracted. Pricing structure, however, is being relooked so that people are not adversely affected. In the long term, prices would be rationalised based on international parity prices. On January 1, we had tried to do it in one go.

How did you arrive at the GCV-based prices, which you say are based on the principle of import parity?
When Coal India raised prices of A and B grades last February, we considered f.o.b (free on board) prices of Indonesian coal of same quality, added the transportation costs, customs duty, port handling charges and calculated the delivered price. This we have done this time too. We made delivered price equivalent to delivered price at pit-head and found out the basic price which became the import parity price. Then we applied a discount for arriving at the new price, which was coming to around 24% discount to international prices.

But when you see the F grade, mostly used by the power sector, the discount was an astounding 77%. As for the grades in between like C, D and E, the discount was between 65% and 77%.

Also, we saw that for B grade, it was 25% discount and when the quality slips a little bit and becomes C grade, there is a collapse of 65% (discount to international prices).

So, when you fix your price under GCV, it can’t be like that; it had to be uniform. So, our major task was how to move gradually and rationally from 25% discount to 77%.

What we decided was that we should make it in steps, and move from 25% gradually to 40%, 50%, 55%, 60% and then gradually to 75% under different slabs of 300 kilo calorie under the GCV system.

What would be the broad guideline for relooking at the newly introduced pricing system?
Our approach for GCV was discount to international parity price. Now the approach will be the current price being paid by consumers. It should be based on a revenue-neutral system. When we say this, we aim at making Coal India overall revenue-neutral. That means, we should adopt a pricing pattern, which will fetch us almost the same revenue that it used to fetch (in the past). But subsidiary wise, some companies may get more and some might get a little less.
You have been claiming that the GCV pricing was also revenue-neutral. But there would have been some revenue growth if you were to implement it. Isn’t it?
We never said we are going to be 100% revenue-neutral. We only said that we would see that every company gets the revenue not less than what they were getting earlier. After running a number of permutations and combinations, we found that except ECL, most of the companies get revenue that is at least the same as what they were getting. In doing that, the discounts had to be reduced. But Coal India would eventually be a beneficiary.
Now that we have been asked to rework and see that consumers are not adversely affected, we are doing that. But since A and B prices will remain high, when you go from B to C, there would be an abrupt fall.

But we can’t avoid that since we have to now see that consumers don’t have to pay more.

How is the GCV system superior to the erstwhile useful heat value (UHV) system?
UHV is roughly a measure of the heat value that was developed in the 1960s, based on an empirical formula which assumes that pure coal can generate 8,900 kilo calories per kg heat. And as moisture and ash content keep increasing, there is a loss of heat of 130 kilo calorie per kg of coal.
So, under UVH, whatever was the maturity level of the carbon and geological age, so long as ash and moisture remained same, the UVH was considered to be same. But the heat content of coal is a function of a matrix in which the quality of carbon content, its maturity, presence of volatile matters all play their roles. This was the basic wrong assumption under the erstwhile UHV system. We now determine the GCV using what we call a Bom Calorie meter in which coal is burnt in a cubicle surrounded by a water jacket. We then measure whatever heat is transferred to the water by measuring its temperature.
When you go to lower value coal with high ash content, UHV is not a true representative of the heat value. As we moved to production of lower value grades like E and F, UHV has started going down drastically. Over the years, we have found that, for example, in G grade coal which has UHV of about 1,300 kilo calorie per kg, if you determine the GCV for that, it comes to 3,000 kilo calorie per kg.

Also, earlier we used to term anything below 1,300 kilo calorie (measured under the earlier UHV system) as not fit for sale and was ungraded and sold as rejects. But we found that it was being used to generate heat. Again, we got to know that for certain earlier grades, while the UHV was low, their demands were high. It means, that particular grade of coal was having some premium value. Also, there was different pricing for coal of same heat value but mined from different mines. This was not our creation but of the Bureau of Industrial Cost and Price (since merged with the Tariff Commission under the Ministry of Commerce in 1999). So, the decision was taken to go in for GCV-based pricing based on real heat content measured by calorie metre.