Govt may accept Deloitte report, split Coal India into smaller companies

Hindustan Times | ByArnab Mitra and Anupama Airy, New Delhi
Oct 21, 2014 12:59 AM IST

The government is set to undertake the restructuring of Coal India Ltd by creating multiple mega coal companies in line with the recommendations of a government-commissioned study by Deloitte.

With persistent coal shortages short-circuiting India's power generation plans, the government is set to undertake the restructuring of state behemoth and world's largest coal miner, Coal India Ltd (CIL), by creating multiple mega coal companies in line with the recommendations of a government-commissioned study by global consulting firm Deloitte.

HT Image
HT Image

Power generation in India is primarily coal-driven, and around 70% of the country's total installed power capacity of 250,000 mega watt is generated using coal as fuel.

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Coal shortages also have a direct political fallout as millions of people in India are without power, and blackouts are a common phenomenon. Coal shortages are also slowing down industrial activity in the country.

CIL and its seven subsidiaries produce about 80% of India's coal output at 450 million tonnes. However, CIL has repeatedly failed to meet production targets, leading to heavy dependence on imported coal.

The restructuring exercise seeks to increase India's coal production manifold and reduce dependence on imports. India imported 142 million tonnes of coal worth $16 billion in 2013-14.

Of the three options proposed by Deloitte (see graphic below), sources said the option to convert CIL's seven subsidiaries into independent companies is under active consideration of the ministry of coal.

"Options under consideration include creating of independent mega regional companies out of CIL, which will cease to be the holding company of the coal producing firms," the official said.

"Each redesigned entity will have a production capacity of range between 70 and 160 million tonnes per annum at the initial level and migrate towards 200-300 million tonnes within 5 to 7 years, creating mega (regional) CIL's."

Coal and power minister Piyush Goyal had told HT recently that a draft report submitted by Deloitte on "possible restructuring options" was "under consideration".

Under another option, Deloitte has recommended phased creation of independent entities with continuation of holding company during transition. This option calls for a more gradual transition.

"This option calls for creating entities with production base of 80-100 MTPA that will be progressively carved out of existing CIL structure and made fully independent entities," the official revealed.

For instance, CIL's subsidiaries - MCL, NCL and SECL - may be taken up in the first phase, while the remaining four subsidiaries will continue to be held by CIL as the incubator. MCL and SCCL own close to 47% of the total reserves of CIL.

"One of the major reasons for the inefficiency of CIL is its huge size and monopolistic position. It is high time that we restructure this company," said a former coal secretary.

"The process of restructuring CIL needs to be pushed through swiftly to boost coal production," said the Economic Survey report presented in July and after the Modi-led BJP government came to power.

Another option calls for carrying out internal changes in structure, system and roles to reform the holding company and its subsidiaries. Under this option CIL will continue to operate in its current form but with certain organisational changes.

This restructuring alternative focuses more on empowerment in the current structure.

The Indian coal industry is the third-largest in the world behind only the US and China, with a reserve base of 300 billion tonnes.

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