Independent directors come to Coal India's rescue

This is probably the first time in Indian business history that independent directors of a PSU take a stand to protect the interests of minority shareholders

It has been over a year since the Prime Minister’s Office had asked Coal India to commit fuel supply to power stations for a period of 20 years. Coal India had then contested it on grounds of penalties and pricing mechanism against the suggestions made by Pulok Chatterji, principal secretary to the Prime Minister. Now finally the government has had to back off and shelve the proposal of price pooling, which would have favoured private power producers and adversely impacted Coal India.

This is probably the first time in Indian business history that independent directors of a PSU take a stand that helps protect interests of minority shareholders. Had Coal India not been a listed entity, the PMO’s diktat would have been implemented, but shareholder activism from funds like TCI, which is the largest non-government shareholder in Coal India, prevented such a move.

Shelving the move prevents Coal India from subsidising imports to players who have set up plants since 2009. Unable to avail of imported coal at a cheap price, on account of the size of imports, private players had asked the government to route imports through Coal India, which would have a better bargaining power. However, along with this, private players wanted Coal India to provide coal at a rate lower than international prices by pooling it with the price at which it supplies coal to older units. Independent directors of Coal India objected to this clause as it would have meant that Coal India would have to bear the brunt of the price difference.

With the issue of pool pricing behind us, post 2009 projects with signed PPAs (Power Purchase Agreements) would have to source coal on a cost plus basis from Coal India or source their own coal. More than 60,000 mw of plants were supposed to be commissioned between 2009 and 2015. Till date nearly 36,000 mw have been commissioned.

Coal India has committed itself to providing 80% of their annual requirement out of which 65% will be through domestic linkages and 15% through imports. With imports accounting for 35% of the pie, power producers will see a cost escalation.

With shelving of the price pooling mechanism we are back to square one as far as the availability of cheap fuel is concerned. However, the government has said that it will constitute a GoM on the pricing of imported fuel within a week and fresh proposals will be sent in two weeks. Decisions made by the government in recent past suggest that private players may have the last laugh, and this time could well be the taxpayers.