Coal Videsh plan in trouble, again

The formation of the much-touted Coal Videsh Ltd, a proposed Coal India subsidiary, may hit a roadblock as the proposal has met with fresh opposition from the finance ministry.

The ministry has suggested that Coal India acquire coal blocks overseas by setting up special purpose vehicles rather than by setting up a separate subsidiary.

"A change of plan is being considered as the finance ministry has expressed reservations on the viability of creating an overseas arm of CIL. This is even as the merger of the eight subsidiaries of CIL with the holding company is being considered," an official told Business Standard.

It is now being proposed that Coal India identify properties abroad and invest through SPVs (one or more) involving joint venture partners.

Besides government companies, private sector companies may also be allowed to partner CIL in these SPVs. The steel ministry has already proposed to the coal ministry to involve Steel Authority of India Ltd and Rashtriya Ispat Nigam Ltd as partners in the CVL projects.

Any setback to the new subsidiary formation may affect the company's plans in the Zimbabwean coal block in the Whangi province and in Bangladesh's Dinajpur district.

A Cabinet note has been prepared by the coal ministry for the formation of a subsidiary, which will have a specific foreign investment focus to make it distinct from CIL - the holding company.

The proposed capital structure of the subsidiary includes a paid-up equity capital of Rs 1,00,000 and authorised equity share capital of Rs 500 crore. It is likely that this note may be modified, incorporating the changes.

The objections to the formation of CVL are not new. "There is no need to have a subsidiary for undertaking overseas ventures. The same can easily be done by Coal India itself," an official had earlier said.

The coal ministry has said the success of Coal Videsh Ltd depends heavily on aggressive penetration strategies that involve high-volume investment decisions to be taken quickly overseas.

Due to the location of the business, the subsidiary will require enhanced delegated power for activities such as foreign travel and foreign currency expenditure, which may be at variance with CIL's delegation of powers.