The Hindu Business Line : Hauled over the coals

"Something tells me that means the start of another cricketing season and you monopolising the television set at home. But tell me, why didn't you watch it?"

"Dad dragged me to one of those lecture meetings of his. I would have normally stayed at home. But mom and sis had gone Diwali shopping and dad wasn't keen on leaving me with you. He thought I would be a nuisance to you at home."

"You are no trouble at all. Actually, I quite enjoy your company. I prefer the incessant flow of questions from you to having to listen to your granny's tales of aches and pains."

"But you didn't really miss much, isn't it? From what I read in the newspapers, your cricket god didn't trouble the scorers too much in that tournament, did he?"

"Ah grandpa, I know you are no great admirer of Sachin Tendulkar. It is silly how you think that Vijay Merchant was the last batsman to have played for India. But that is not what I came to talk to you about."

"It is pity you don't think of me as much of an expert on cricket. Never mind now. So, what is it that you wanted to talk to me about?"

"It is about this lecture. Heard dad tear the speaker to pieces to his boss over the phone. Said something about the `red brigade' and the `jholawala' types not having understood what the energy sector means to the country's manufacturing economy... blah blah."

"What got your dad so excited?"

"I didn't quite follow what he said. But I think, what really riled him was the bit about how it would be a great national disaster if Coal India was privatised. Now tell me, why should it not be privatised?"

"The coal that lies buried under the ground is the common property of the nation. It takes of millions of years to form and once used, it can't be replenished, at least not in my lifetime or yours. The theory is that it should be mined in such a manner that the country can extract the maximum of what lies beneath."

"Why can't the private sector ensure this?"

"In the hands of a private investor this invariably leads to a conflict of objectives. Should he, for instance, worry about extracting the maximum quantity over the life of the mine or focus on getting out of it what there is, here and now, and not worry about the future? A government, or so the argument goes, is better able to resist the temptation of short-term profits over long-term gains of higher production.

"There is another argument that supporters of public ownership of coal mines cite. Coal India has a quite a few mines that are unviable because of the nature of mining and the cost of labour. Under private management there is a real danger of these units being shut down, rendering labour who incidentally belong to some of the poorest regions of the country, without a source of regular income. One also wouldn't put it past private managements to resort to hazardous working conditions in these underground mines to cut costs. By keeping the coal sector in public hands, the State gets an opportunity to present itself as a model employer."

"But surely, the government can compensate employees who voluntarily opt for early retirement? After all, it seems to me once the manpower is rationalised there would be no need for the private investor to resort to retrenchment. Even underground mines can be shut down if the staff can be pensioned off."

"That would of course be the logical thing to do. But here is where politics, or rather, politicians come into play. The mining sector — workers and their family members — are a huge vote bank. Offering voluntary retirement as an option means that the politician can no longer present himself as their benefactor. On the contrary, by raising issues of privatisation and job losses, politicians set themselves up as custodians of the interests of the entire workforce in the coal sector!"

"Is that all there is to political opposition to privatisation of the coal industry?"

"Hmm. If only life were that simple. Actually job losses or accusations of profiteering private investors are often no more than excuses for pushing forward a private agenda. Politicians don't want the coal sector to be privatised. The public sector Coal India is a huge operation. It sold coal worth Rs 26,000 crore in 2003-04 and there are reports that next year that figure could be Rs 30,000 crore, although official numbers are not out yet. This implies that there is a lot of money to be spent on the purchase of mining equipments, stores and a whole range of mining services. So whoever controls operations of Coal India has a tremendous influence over how and on what these monies will be spent."

"So you are saying that somebody could be making money on these decisions?"

"Young man, you do show a tendency to jump the gun, a trait, I suspect, you have picked up from your mother!

"That is not what I said. All I am suggesting here is that personally, I would find my stint as the country's coal minister a rather dull and an unexciting affair without the fortunes of Coal India to preside over."

"But doesn't all this cost the nation?"

"It does. Coal India is hugely profitable. An ICRA report says that it currently enjoys a profit margin of over 11 per cent on sales. At that rate, it is perhaps more profitable than some of the most glamorous names in the country's private sector."

"Are there hidden costs as well?"

"The hidden cost is that the political system wouldn't allow any policy initiative that undermines the profitability of coal mining operations in the public sector."

"How would you ensure that?"

"I would put some pressure on the government to agree to a hike in coal prices, raise import duty on steam coal so that imports become expensive. For added measure, I would also demand that coal imports be canalised so that it becomes just that bit more difficult to source coal."

"Who then pays for higher coal prices?"

"Initially, of course, it is the public sector monopolies that distribute electricity in various States. They are no fools either. They, on their part, try to pass it on to the consuming public. But there are political costs attached to this strategy. There comes a stage when these utilities are unable to pass on the burden. There just isn't enough money to go around. So these utilities resort to the time-honoured device of delaying payments on bills for coal supplied. After some time, they feign intention to make payments as though the whole delay was merely an administrative issue. Soon even that pretence is given up. They default outright on their obligations. This goes on for a while. The coal company makes the usual threatening noises. They may even make a show of stopping supplies.

"Actually they can't, but that is another story. Anyway, soon the problem escalates to a point where the Central Government has to step in. Its solution on such occasions is to dip into its coffers. They arrange to issue some bonds and the media, ever ready to reduce things to a pithy phrase call it `coal bonds'. These are issued to the public sector coal company in settlement of their dues. Since these are dues of the State-run power utilities, they may even be accounted as special grants to the respective State governments, if they are lucky enough to cite terrorism or secessionist tendencies in their States as a reason. But at worst, it may be treated as loans. Not that it really matters because no one is particularly worried about the repayment. And life goes on till the next coal crisis."

"Why would States not worry about the future?"

"That's politics for you. There is no such thing as long-term. Just a series of short-terms."

Racy@TheHindu.co.in

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