The Hindu Business Line : `If stocks had moved from pitheads, there would not have been shortage'

Opinion - Interview
Industry & Economy - Coal

`If stocks had moved from pitheads, there would not have been shortage' — Mr Shashi Kumar, Coal India Chairman

Ambarish Mukherjee

The power sector had been complaining of coal shortage for the past few months. Coal India Limited (CIL), with its seven coal-producing subsidiaries and one for mining planning and development, is the largest coal company in the world. The public sector undertaking is now looking to acquire interests in coal blocks in other countries such as South Africa, Australia, Mozambique and Indonesia. In 2004-05, CIL produced 324 million tonnes of coal against a target of 314 million tonnes. Of this 249 million tonnes was supplied to the power sector against the target of 240 million tonnes.

According to CIL's estimates, the plant load factor (PLF) of coal-based power generation has been around 65 per cent in 1995-2001 and 71.5 per cent in 2001- 05.

CIL's new Chairman, Mr Shashi Kumar, shares his views on the company's role in the national energy scene, its effort to establish a strong presence in the international coal market, the plans for the next few years, and ongoing debate on the holding structure of CIL.

Excerpts from the interview:

A large number of thermal power plants are running with one/two-day coal stocks. They complain Coal India is starving them of supplies...

That is not exactly correct. There are 73 power plants to which we supply coal. How many of them are having this kind of stock? Maybe 10 or 15... However, one should understand that coal supplies are subject to the quantum laid down by Standing Linkage Committee, a government body, against which we have been achieving the target in almost all cases. Moreover, CIL has 21 million tonnes of coal stock at its pithead right now.

This could have moved but has not... because of various constraints. Railways have movement constraints. Constraints also arise out of non-payment of dues by power plants. There are other logistic hold-ups at the power plant end as at loading end. Had it moved, this shortage of 12 million tonnes, which is being talked about, would not have been there. Anyway this shortage is for the whole year and in a country that is producing close to 360 million tonnes of coal annually, it comes to less than 3.5 per cent. But with better planning even this shortage could have been avoided.

Today, when there is such talk of coal shortage, people should try to find out the reasons for it. What was the planning? Whatever CIL was asked to produce did we not achieve that? For the last seven years whatever target was given to CIL, has been met; in fact, we have exceeded it by several million tonnes. During the Ninth Plan, we were informed about the capacity addition in the power sector and we planned accordingly. However, power plants failed to come up, and in 1997-98 Coal India was forced to peg down production. Now, these factors would have to be taken into consideration.

What is the progress in the ongoing National Coal Wage Agreement?

Most issues have been sorted out. Workmen's wages have been raised by around 22 per cent. But the unions are pressing for mandatory employment of dependent in case of natural death. While we have conceded employment in case of death arising out of a mine accident, in other cases it is violative of equal rights of citizens to seek employment in a PSU. A strike notice has been served but we are trying to bring about a peaceful settlement.

There is a feeling that some sort of a turf war is going on between the Government and Coal India. While the Coal Ministry favours decentralisation of power and more autonomy to the coal-producing subsidiaries, CIL management is believed to be in favour of centralised decision-making process. What is the situation?

It is not exactly that. Let me explain. When there are two individuals they may have two opinions but as of now, the Ministry of Coal and Coal India do not think differently. It is an honest opinion.

A Government report has suggested that CIL should be decentralised and the subsidiaries made autonomous. I too believe that the subsidiaries should be given their share of autonomy. But I also believe that there are certain jobs which are better handled by CIL, as I have size in my favour.

For example, if CIL desires to acquire interests abroad, as is the planning right now, what will matter most is size. The equity base, the level of management expertise, the production levels that we have... They will judge CIL on these parameters to assess whether I will be able to do some worthwhile development in their country. They will judge us by our strength and performance. Certainly the aggregate performance of CIL would be many times more than that of any individual subsidiary. This is the advantage that size gives me.

To give another example, all coal companies need to buy similar type of equipment and accessories. When they place orders individually, they are one-sixth or one-seventh of the total demand. But when CIL does that, it is the aggregate requirement and therefore much larger in size. So CIL can exert more influence on the market in terms of price. Agglomeration and decentralisation have their own significance in strategic business decisions. For CIL, agglomeration would not only help in consolidating its core competence but also provide opportunity to offer its customers a wider product mix thereby helping CIL maintain its position in the face of probable entry of private players.

The Ministry and CIL do not have different views on the matter. A view is already being taken about what needs to be decentralised and what must remain centralised. Also, an expert committee is looking into it.

You are using the term "wider product mix". Your buyers complain that you force them to lift poor quality coal also when they want better varieties for which they do not mind paying more. This appears to be some sort of muscle flexing by a government company that is enjoying monopoly?

This terminology is not correct. I would call it strategising. I am called a monopoly because there is no competition. Tomorrow when the restriction on captive use is removed, there will be other players in the market.

There will be international players too. I will have to compete with them. If the Coal India structure is dismantled when the private players are allowed, I will lose the advantage of size. I need to have this advantage so that when I decide the price of a produce, I see its total aggregate implication.

For example, NCL, with 100 per cent open cast production, and MCL, with 95 per cent open cast production, can afford to reduce prices to a certain extent but that would affect WCL and SECL. While consumers need to be given the benefit of low-cost of production, one also has to take a rational view because improvement elsewhere is not exactly restricted by efficiency of operation but because of specific nature of coal deposit and depth of its occurrence.

Underground mining is essentially a high-cost proposition and if such mines are not assisted they will have to be closed. Economic sense may permit that to happen but optimal use of one's own national resources dictate otherwise. Organisations such as CIL have to exercise that caution. Why do you have Tata Sons? Why do you have Reliance? They are private sector companies.

These companies have given relatively good amount of autonomy to their subsidiaries but they still retain holding structures to exercise some kind of control. Right now, SAIL has got four steel plants and NTPC has 14 plants as subsidiaries. Why are we not talking of decentralising them?

Merging the subsidiaries with CIL will also give the company some tax advantages?

May be, but I do not take that to be any reason for a merger. I do not subscribe to such flimsy reasons because it is covering my inefficiency somewhere. I am not able to make money in ECL and BCCL and therefore I should be allowed to deduct this loss from the profits of the profit-making company is like saying that look here I am inefficient in certain places and so I do not want to pay the tax. No, I don't really want that. I would improve there too, I will pay enough tax. I don't want to save on the taxes to say that it justifies the whole company to be unified. No. The unitary company concept is justified by itself because of the reasons of size, decision making, bargaining capacity, for global standards in R&D and increase of core competence.

As long as holding companies are there, and we have a clear delineation of the authority of the holding and subsidiary companies, it is fine. Let one not step over other's jurisdiction. If that command structure can be maintained, it is the best structure. If one starts opposing the other then the structure collapses.

What about disinvestment of CIL?

Right now there is nothing in the pipeline. But even if it happens there are many issues involved to arrive at some conclusion.

There is a Government proposal of removing aluminium and paper from the core sector status. What is the position on that?

Initially they were in the non-core sector. They were brought into the core sector with the concept of giving some sort of assured coal supply. But now being in the core sector gives certain price advantage too. A review is required as to whether they need to be retained in this sector. There was a rationale when they were shifted, there is a better rationale now as through the e-auction system, one can have as much coal as one wants but without the price protection.

However, this is outside the domain of CIL. The Government will have to decide. In fact, the whole policy about the methodology of sale of coal is under review and nothing substantive can be said at this moment.

Is another round of coal price hike in the offing?

I don't want to comment on the issue because either way it would be interpreted as an authoritative statement.

What sort of reforms within CIL do you envisage?

We have approved the formation of a subsidiary, Coal Videsh Limited, that would acquire coal-mines abroad to augment supplies for Indian consumption. We are looking at South Africa, Mozambique, Australia and Indonesia. Apart from this, we have certain other objectives. Our priority is to remove the influence of the mafia and we are moving towards that direction. Our priority is to supply quality coal to the consumers. To that extent we are moving towards facilitating installation of more washeries. We need to tackle the so called coal mafia menace through transparent system of tendering, weeding out unscrupulous non-core linked consumers, preventing illegal mining in their premises.

Since an expert committee is looking at the command structure between CIL and its subsidiaries, decentralisation of certain functions is on the anvil. Our equipment utilisation needs to be improved substantially through a system of rewards and punishments. We also need a proper policy for acquisition of land. We also need to focus more on exploitation of coal bed methane and underground gassification of coal

Simultaneously, we need to close mines with low reserves, unviable in nature without disturbing the workforce much, which can be deployed elsewhere gainfully. We are also thinking of some forward integration like setting up some power plants in collaboration with power producers initially and later independently.

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