Energy/ Coal Sector

Coal matters

Print edition : February 05, 2016

At the Gevra coalmines in Chhattisgarh, India, a 2009 picture. In November 2015, the Cabinet approved the sale of a 10 per cent stake in CIL, the third such sale, and expected to raise upwards of Rs.20,000 crore. Photo: REUTERS

An advertisement for Coal India's IPO in Mumbai in October 2010. Photo: Dhiraj Singh/Bloomberg

Coal India plays a key role in securing the country’s energy needs, but the government is neither taking any step to support it nor addressing the issues of tribal communities and other stakeholders.

“Agar koyle ka privatisation hua toh Prem Chopra ke ‘Kaala Patthar’ din vaapis aayenge” (If coal is privatised, then the days of Bollywood villain Prem Chopra’s ‘Kaala Patthar’ will be back). These words of caution come from V.M. Manohar, deputy general secretary of the Koyla Shramik Sangh, affiliated to the Centre of Indian Trade Unions (CITU) in South Eastern Coalfields Ltd. Alluding to Yash Chopra’s classic film based on real-life events of the Chasnala mine disaster near Dhanbad in 1975, which resulted in the death of close to 400 miners, Manohar expressed the fear of workers over privatisation which threatens to undo the gains achieved through the nationalisation of mines since the early 1970s.


In the century-long pre-nationalisation era, the sector was notorious for dangerous and unsafe working conditions, which was the chief rationale behind the state takeover of the mines, apart from other reasons such as unscientific mining practices, inadequate investments leading to sluggish growth, conservation of natural resources and unsystematic extraction of coking coal reserves. It would be a cruel irony if the sector goes back to the days of irrational practices following privatisation.

Moreover, Coal India Ltd (CIL) is not just a state monopoly in its area of dominance but a profit-making entity. For 2014-15, its net profit was Rs.13,726.70 crore, compared with Rs.15,111.67 crore in 2013-14 and Rs.17,356 crore in 2012-13. Its net profit for 2011-12 was Rs.14,788 crore compared with Rs.10,867 crore the previous fiscal.

CIL accounts for over 80 per cent of the domestic coal production, and the government has set a production target of one billion tonnes for it by 2020. On the back of a record production by the coal major and other factors, the country’s coal imports fell by 15 per cent to 132.3 million tonnes in the first nine months of the current fiscal, from 155.4 MT a year ago, according to Coal Secretary Anil Swarup. In value terms, the decline was worth around Rs.18,000 crore. The Bharatiya Janta Party-led (BJP) National Democratic Alliance (NDA) government is clear about its coal mandate—to surpass the previous United Progressive Alliance (UPA) regime in privatisation of mines by disinvesting CIL and allowing commercial mining by private players.

Finance Minister Arun Jaitley, in his 2015-16 Budget speech, pegged the disinvestment target for the fiscal at a whopping Rs.69,500 crore. But disinvestments in India have had a chequered history, proving to be non-transparent exercises time and again. For instance, the Centaur Hotel divestment under the first NDA government under Prime Minister Atal Bihari Vajpayee was fraught with controversies. At the time, the Comptroller and Auditor General of India had raised several questions over it, indicting the NDA government and Disinvestment Minister Arun Shourie, and a Central Bureau of Investigation (CBI) inquiry was conducted. But in today’s political climate, with regulators being increasingly marginalised, irregularities in disinvestment of the country’s assets might well be ignored.

In September 2014, the Supreme Court found that all coal mining leases between 1993 and 2011 had been allocated arbitrarily and cancelled the licences of 214 coal blocks, out of 218, and both Congress and BJP governments, as well as companies across the board, were found to be complicit. Now a CBI investigation is going on.

Soon after, the government promulgated an ordinance to open up the coal sector for captive commercial mining. It was seen as the first step towards allowing commercial mining and moving closer to denationalising the sector. Replacing the ordinance, in March 2015 Parliament passed the Coal Mines (Special Provisions) Bill. Thereafter, 31 coal mines were auctioned in three phases. It was estimated that Rs.3.44 lakh crore of revenue would accrue to States through coal mine auctions and allotments over 30 years from the three rounds of auction. And yet, the fourth round of e-auctions that were to begin on January 18, in which nine mines would have gone under the hammer, has been cancelled. Higher production by CIL and falling global prices are being touted as the reasons for the cancellation. A sluggish economy along with a crash in demand in all sectors may have also contributed to the decision. Whatever the reason, bidding interest among private players has been consistently declining, which was evident in the third round of auctions held in August, in which only three of the 10 mines to be sold were auctioned owing to a lack of bids in some cases and litigation in others.

As far as performance parameters go, CIL is a successful public sector unit, even the “best mining company in the world”, according to Manohar, who alleged that backdoor privatisation of the company was an ongoing process, with sick mines being handed over to private players. “For instance, the tendering process for Manikpur opencast mines in Korba, Chhattisgarh, is already on,” he said.

Despite CIL’s sound economics, the government has been gradually diluting its shares in the market. In complete disregard for good economic sense, it seems hell-bent on accruing one-time payments by offloading shares in the market rather than securing long-term profitable dividends. “They are selling the family silver to meet the current consumption expenditure. This does not make prudent economic sense,” Tapan Sen, a Communist Party of India (Marxist) Rajya Sabha member, said.

Among all Central public sector enterprises (CPSEs), CIL has the highest market capitalisation of Rs.2,07,619 crore on the Bombay Stock Exchange (BSE) and Rs.2,08,314 crore on the National Stock Exchange (NSE), as on December 31, 2015. The market capitalisation as on January 8 stood at Rs.2,02,787 crore (closing at Rs.321.05 on the BSE). The government owns a 79.65 per cent stake in CIL.

CIL’s initial public offer was held in 2010-11 and was the largest ever CPSE IPO, raising Rs.15,199 crore for the exchequer in lieu of a 10 per cent stake. Its second public offer in January 2015 sold 631.64 million equity shares or a further 10 per cent stake at an average price of Rs.357 per share, raking in Rs.22,557.63 crore. In November 2015, the Cabinet approved the sale of another 10 per cent stake. This was expected to garner upwards of Rs.20,000 crore for the government, but current market volatility has created a roadblock for the stake sale.

Shortly after the announcement was made and the Department of Disinvestment enlisted seven merchant bankers for the issue, CIL’s share prices saw a steady decline on the stock market. Foreign investors such as Fidelity, Black Rock and Wellington Management raised concerns over the low valuation of CIL at the time, indicating that it would not fetch hefty returns. So, owing to pressure from these investors and the lower share prices, the immediate stake sale has been put off for the time being.

Besides, there is opposition from within the Finance Department and others, Tapan Sen said. “After the Mines and Minerals Development and Regulation Act, 2015, came into effect, it is not imperative that the coal blocks will come to CIL, they may also go to private players. This may be one of the reasons that the investor demand is not that high. This is a boon in disguise for the time being. But there is serious pressure on the government from different lobbies to divest the sector, and given Modi’s philosophy of wanting to demolish everything that the country has built up since Independence, they may just go through with the stake sale as even on gloomy days, coal fetches a good price,” he said.

In any case, this means that the disinvestment target set by Jaitley in the Budget, of Rs.69,500 crore (Rs.28,500 crore from strategic stake sales and Rs.41,000 crore from minority stake sales such as in CIL), might remain woefully unmet. As a means to recover some of the lost ground on this, the government has asked CPSEs to pay a 30 per cent special dividend and cash-rich PSUs like CIL to issue bonus shares. “This means that the disinvestment plan will be delayed,” said D.D. Ramanandan, vice president of the All India Coal Workers’ Federation.

But at the centre of all this are workers’ interests, which might be irretrievably hurt. “Since nationalisation, the quality of life for workers has changed drastically. While coal is a sector which reports a high rate of accidents due to its nature, that incidence has gone down and social backwardness has also reduced after the sector was nationalised. It may all go away with this phased privatisation,” Tapan Sen said.

There are some 3,40,000 permanent employees and 20,000 contract workers with CIL. Since coal is not in the Central or State Schedules, the salaries of workers can be arbitrarily set, Ramanandan said. Sustained agitations by unions ensured the setting up of a high powered committee by the CIL management in 2010, which fixed minimum wages for all employees. While the wage structure has not been implemented fully, consistent union interventions provide checks and balances, but under a private player, where most of the workers are under the contract system and unions are redundant, unless the private entity decides to be ethical and gives workers their rightful dues, there is every possibility of exploitation in the name of cutting costs.

Central trade unions are planning to hold a steering committee meeting to devise a strategy to oppose the government’s moves to privatise the sector. In January last year, the CITU affiliated to the Communist Party of India (Marxist), the All India Trade Union Congress affiliated to the CPI, the Hind Mazdoor Sabha and the Indian National Trade Union Congress, led by the BJP’s Bharatiya Mazdoor Sangh, went on a five-day strike in CIL against denationalisation and for regularisation of workers. At the end of the second day, the strike was called off after a joint committee agreed to look into a 12-point charter of demands.

While the country’s energy shortage issues are real, and there is a need to drastically shift strategy by tapping renewable sources of energy in the long run, land issues and tribal rights over forests cannot be wished away. The Coal Ministry notes forest clearances and land acquisition to be major challenges, but so far it has not devised any appropriate strategy to address them.

Coal mainly comes from five States, among which Chhattisgarh, Jharkhand and Odisha are the ones with the largest tribal populations. On October 2 last year, communities in Raigarh conducted a protest for the fourth year in a row. In a symbolic comparison with Mahatma Gandhi’s salt satyagraha against the British, thousands of villagers affected by public and private coal mining reportedly marched to the banks of the Kelo river and mined their own coal.

Time and again, tribal communities have urged the government to include them in the decision-making process, but the government seems to find coercive measures more amenable. In a rare victory for the people, since every request to the government is seen as an anti-government stance, after a sustained campaign the Coal Ministry banned mining in Mahan, a unique diversified forest area in Madhya Pradesh. If the country needs to be energy sufficient, it will have to do so by taking its people along and not by displacing them.

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