2018 has again seen coal production unable to meet rising demand for the mineral. This has again drawn attention to the sector, another reason being the release of a report by a government committee which recommends commercial mining. PARTHA SARATHI BHATTACHARYA, a member of this panel and a former chairman of government-owned Coal India, speaks to Subhomoy Bhattacharjee. Edited excerpts:
Q: There are two ways to describe Coal India's finances. From FY13 to FY18, profit declined by over 60 per cent. The other description is that the first quarter (Q1) of FY19 saw net profit rising by 61 per cent.
A: The decline in net profit margin from around 20 per cent in FY13 to five per cent in FY18 is probably due to the revision of coal grades by the coal controller's office. Essentially, more grades of coal were being sold cheaper. Also, the introduction of independent sampling and analysis by the CIMFR and, finally, the lesser share of coal sold through e-auction. The lower share meant a drop in the e-auction premium over the period. It happened primarily due to softening of global prices.
The same trends have got reversed recently, due to which there is a rise in net profit -- possibly also due to the low base of Q1 in FY18).
Q: CIL and the government, too, have recently asked for a revision of the earlier one billion tonnes per annum target. How do you read this?
A: This target for CIL by FY20 was neither feasible nor required. A realistic resetting is overdue. Expecting CIL to grow in excess of six-seven per cent annually over a longer period of time is not feasible and depending on such expectation is, in fact, detrimental to the interest of consumers. The power capacities stranded for want of coal is a glaring testimony to the setting of such unrealistic targets.
Q: CIL is a large company, headed by a puny ministry. Hasn't this led to sub-optimal results for the company in terms of investment, management control and so on? In retrospect, what would have been the impact if the Government of India had taken a different role in the 1970s, with an increased role for the coal regulator and competition among smaller state-owned coal companies?
A: Reforms in the power sector led to growth rising three-fold during 2007-12. Anything short of faster opening up of the coal sector to commercial mining was inadequate as a policy response. Unfortunately, neither policymakers nor large power consumers realised this requirement. The myopic response considered by all stakeholders was to thrust irrational targets of production and supply of coal on Coal India. The result is there for everyone to see.
Commercial mining has since been allowed and will hopefully be fast-tracked. If this endeavour succeeds, the coal market will mature and shortages become history, hopefully over the next five years.
Q: Why haven't CIL's share prices given a fair return to its investors?
A: CIL shares have yielded return to investors more by way of dividends than capital appreciation. CIL has all the strength to counter competition. The share price is expected to witness capital appreciation once CIL, exposed to competition, takes more effective measures to drive efficiency and coal quality. One of those would be commercial mining. It will help the market to mature, leave buyers with choices for sourcing coal. Shortages will be a matter of the past and CIL, with appropriate empowerment, will secure its position as the undisputed numero uno globally.