State-owned Coal India Ltd (CIL) is the largest producer of dry fuel in the world. Its production acts as a critical determinant of a bulk of the output from major infrastructure sectors such as power and steel. With the government’s new-found sensitivity to environment, the Maharatna enterprise has received a lot of flak for failure to boost production. Its Chairman and Managing Director, N C Jha, shares with Sudheer Pal Singh and Jyoti Mukul the compelling need to increase prices and securing assets abroad. Edited excerpts.
Coal India Ltd is due for a wage revision this year. How would it impact your bottom line?
Every five years, we increase wages of workers and every 10 years that of the executives. We currently have 384,000 employees of which around 15,500 are executives. From July 1, we are due for the ninth National Coal Wage Award. The wages will increase as a result of this, but the extent of increase will depend on negotiations with trade unions through a joint tripartite committee, with representations from five major trade unions and coal companies. This formation has not yet taken place. I have sought the views of trade unions. The rise in wages will not be effective until we have signed the wage award which is expected to be concluded in two months. But we will have to make a provision for this increase in wages from July.
CIL increased coal prices in February. Would you go for another price rise soon to make up for the increase in wage burden?
We introduced a differential pricing system in February by increasing prices of certain grades of coal, namely A and B grades, and also that of the production from Mahanadi coalfield. This yielded some additional revenue. The last rise had taken place one-and-a-half-years ago and, whatever inflation was there till then has been compensated. Roughly 11-12 per cent of total revenue has increased since then.
Differential pricing has now been introduced, and that will stay. There has been a genuine reason for this. Consumers in sectors, where end-product was not regulated, got coal at a price similar to that for regulated sectors. It was discrimination and made some sectors competitive. Coal is a scarce uncommodity. People are importing coal at much higher price than we supply. Also, one cannot get coal through linkages. They are buying it from e-auction at high prices.
How has the Comprehensive Environment Pollution Index (CEPI) moratorium impacted CIL?
Nine of our coalfields have been covered under the CEPI moratorium. Of that, only one — Angul in Talcher district of Orissa — has been taken out. The moratorium has been extended up to September. The earlier date was March. We had factored the impact of this moratorium in current year’s production. Around 40 million tonnes (mt) of production capacity has been reduced because of the moratorium. Any further decline is not likely to happen. We had hoped that some of our projects impacted by the moratorium would be brought forward and we could increase production. But that looks a little distant now.
The government is working on various proposals to tighten the corporate social responsibility (CSR) regime for corporates. Does that put you under pressure?
We earmark a budget of five per cent of our retained profit or Rs 5 per tonne, whichever is higher, for CSR activities. So, if our production is 450 mt, we keep Rs 225 crore for CSR. We did this in the last two financial year. However, the spending has not been commensurate with the budget. Of Rs 225 crore, we have been able to spend about 60 per cent every year. This fund will not lapse. Eighty per cent of this has to be spent within 15 km of the working area. While there is enough fund available, there is a slight problem in spending. We have to engage with the state governments, NGOs and other organisations for CSR activities. Once we identify a project, it is discussed with the district authority before the tendering. The current guidelines do not allow us to do this work entirely on our own. We are trying to standardise it.
The coal ministry is opposing the government’s proposal to ask miners to share 26 per cent of their profit with the tribals. How would it affect CIL?
A group of ministers are working on this. It is an issue which I would not like to comment on.
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As a company, it will impact you. As a concept, do you think this is the best way to compensate the affected?
There is a problem in the applicability of such a concept. It has to be clarified, what is meant by 26 per cent of a company’s profit. A company is not a single unit. Land is acquired for a project, which may not be earning enough returns. Enough return earning projects may be somewhere else. How do you separately make that unit a company. Every project has to be treated as a separate costing and accounting centre. If a company is working in a large number of areas, how do you keep different cost centres?. If the company makes profit in Maharashtra, it cannot be shared in Madhya Pradesh.
In our country, the aspiration is to get a job and not profit. What if a company has made loss? There will be lot of unrest. As a company, we employ project affected persons. Any land oustee is free to choose between the state policy and CIL policy for resettlement.
Prior to 1990s, there was no Resettlement & Rehabilitation (R&R) process. Even if we feel that people are satisfied with us now, this is not going to end. The requirement will further increase. People feel those who are displaced are owners of the mineral below the land.
What is the status of your international operations?
Our interest is to acquire some stake in assets overseas. A lot of due diligence is required for that. We already have two mines in Mozambique. These are completely new areas. We have invited tenders for exploration. We have already floated expression of interests for selecting technical consultants.
How much money have you earmarked this financial year for overseas acquisitions? And what is the overall capex plan for 2011-12?
We had kept Rs 6,000 crore last year (2010-11) for acquiring properties abroad. The target will remain the same this year, too. The overall capex plan for this year is Rs 4,200 crore in addition to the target for buying properties abroad.
The company had announced plans to set up power plants to utilise its huge stockpiles. What is the status?
People need coal, but it is not getting delivered. This is a temporary thing, but setting up a power plant on my own is a permanent structure. It is not to remain there for only one or two years. Once a plant is built, the entire coal will be consumed there. What would happen to others then? It cannot be a hurried decision. It has to been seen whether transportation logistics can be developed. There are issues of forest cover also.
