CIL restructuring, price free-up buzz resurfaces

The government has again stoked the issue of need for restructuring Coal India Ltd (CIL).

The economic survey has raised the demand for freeing pricing of coal, which it indicated is subsidised leading to distortion in the market and wasteful consumption.

"The process of restructuring CIL needs to be pushed through swiftly to boost coal production," said the survey without going into the specifics of how that should be addressed.

Till now, the concept of restructuring country's near monopoly coal miner and world's largest producer has revolved around breaking up of the behemoth, a holding company actually, into separate mining companies, all of which currently operates as its wholly owned subsidiaries.

But the restructuring being suggested is not breaking up, that was being expected by the financial markets. It is about turning CIL board more efficient and responsible.

"What the survey indicated is the restructuring as per the TL Shankar Committee which didn't recommend breaking up of CIL but suggested a more professional board," Partha Bhattarcharya, former CIL chairman told dna.

"Regarding restructuring of CIL, the committee felt that it may not be appropriate to initiate any major restructuring of the existing legal and administrative arrangement of CIL at this time. It is, however, suggested that some adjustment in the board level should be made by making the CMD of CIL, chairman of the Boards of all the subsidiaries and designating chairmen of the subsidiaries as vice chairman and MD. By this arrangement the CMD of CIL could be held accountable," the committee had suggested in 2007 which the survey has suggested to follow.

Coal minister Piyush Goyal has been denying that the government is considering restructuring CIL arguing that focusing on raising its ability to raise production in an efficient manner is what the government is concerned with, something which can't be addressed just by breaking up the corporation.

"The more pressing problem before us is enhancing coal supplies, sorting out environmental issues both of which are a legacy of inaction, ineptitude and policy paralysis that the sector has faced over many years all of which is the result of environmental constraints many times unreasonable," Goyal said recently.

CIL supports the view that the production can't be raised by breaking it up.

"Unfortunately, the mistakes committed by the government in allocating coal blocks to non-serious captive parties and regulatory hurdles arising in the ways of coal production are being cleverly kept hidden by shifting the discredit on CIL for not producing enough to meet the coal demand of the country," a senior CIL told dna.

"Moreover, it is forgotten that a large part of the hindrances and obstacles faced by the captive operators, in the way of coal production, are also valid for CIL. The idea of creating competition amongst CIL subsidiaries is a utopian thought. The propagators of this concept of restructuring of CIL perhaps are not aware that each of the seven subsidiaries of CIL produces coal under widely different geo-mining conditions," the official said.

While breaking-up of Coal India is widely seen as a positive for the stock's valuation in the bourses, there are contrarian views too.

"Restructuring CIL, which essentially involves separating its subsidiaries and making them independent, doesn't appear value accretive as it is only a holding company and would lose its attractiveness once the mining companies are separated," an analyst tracking the sector said.

The survey said there is a strong case for "removing pricing distortions seen by consumers such as administered pricing for coal."

"Fixed prices are dulling the market response of reduced consumption in response to higher prices and reducing the flexibility of the market economy," the survey said.

The survey also partly blamed stifling regulatory environment for CIL's poor output. " The slowdown in coal production partly owes to regulatory issues," it said.

This will lead to increasing imports, which might create a problem if global prices of coal start rising.

"The cost of imports would have been much higher had there not been a slide in coal prices in the international markets in the last two years. With stagnant domestic coal production, coal imports are likely to surge in the remaining three years of the 12th Plan," the survey said.