For years, Coal India functioned as a losing concern, mainly because of the poor performance of some of its heavily-manned subsidiaries such as Bharat Coking Coal (BCCL) and Eastern Coal-fields (ECL). CIL's annual report hardly made big front page news. But, it will now make. Now on, the world will be watching the stock exchange-listed new Coal India.

CIL's performance will now come under the public lens, including those of investors' forum and the stock market regulator, the Securities & Exchange Board of India (SEBI). While the government has mopped up Rs. 15,000 crore (US$ 3.5 billion) by unloading in the market only 10 per cent of its stake in CIL, the responsibility for fulfilling the performance projections in the offer document (prospectus) for the government share sale rests entirely on the management of the company. For the first time since the nationalization of the coal industry by the government some four decades ago, CIL management will be answerable outside the confines of New Delhi's Shastri Bhawan, the seat of ministers and bureaucrats in the department of coal. The management will have to meet the expectations of private investors, including foreign institutional investors, who pumped in large funds to acquire high-premium (Rs. 245 per share) CIL shares. The IPO has brought little tangible financial benefit to CIL, except pushing up its notional market valuation to $35 billion. If the CIL fails to meet the investors' expectations, its market valuation is bound to erode and so will the confidence of the public in its management.

The CIL management has already come under the public scanner for “errors” in the company's profit and loss statement, following which the SEBI had immediately asked the company to allow 'withdrawal of bids' by any interested investor or investors. The company was asked to publish a corrigendum to the financial statement for the benefit of the public, which CIL had readily agreed. One wonders if the 'errors' in the company's financial statement were deliberate. Rather mysteriously, these 'errors' even escaped the trained eyes of SEBI bosses and the managers of the IPO, which included such leading names in the financial management world as Citigroup, Morgan Stanley, Bank of America-Merrill Lynch, Deutsche Bank, Kotak Mahindra Capital and Enam Securities? Fortunately for CIL and SEBI, the euphoria about the IPO and its massive 15 times oversubscription helped bury the news of 'errors in CIL's financial statement'. The mistake was underplayed by all concerned, including the media.

Interestingly, CIL has already eaten its own words on the company's production target for the year, downsizing it from an earlier projected level of 520 million tonnes to 486 million tonnes. CIL, now a listed public company, will have to be more careful about making its future production and financial projections. Wrong projections will not certainly go down well with investors and the stock market. They will also indirectly impact the government's future PSU disinvestment targets and programmes. The history of mafia operations in the coal belt carrying political patronage, illegal mining, coal theft, financial corruption, inflated project costs, the difficulty in acquisition of tribal land for mining, environmental challenge, etc. have long hampered CIL's ability to operate up to its true potential. The average production growth has been just around four to five per cent annually. In fact, the coal production and colliery expansion programmes are now facing a bigger challenge from a formidable combine of militant Maoist revolutionary groups and the traditional coal mafia in the mining belt covering Jharkhand, parts of West Bengal, Orissa and Chhattisgarh, which have been witnessing total lawlessness and brutal political killings since 2008.

CIL, which accounts for about 85 per cent of India's coal production, has never been known as a very efficient mining company. The level of mechanization is rather low. The company is highly over-manned. Resultantly, the production cost remained high. India ranks fourth in terms of world's proven coal reserves, which are estimated at 847 billion tones, after the USA, Russia and China. India's coal reserves are estimated at around 200 billion tones. China, the world's largest producer and consumer of coal, raises almost four times the volume of coal mined by CIL. India is increasingly facing shortage of coal, forcing its steel plants, thermal power plants and industrial furnaces to import coal to meet the supply gap. CIL's production of metallurgical coal or coking coal and steam coal has been stagnating for several years. Consequently, India has emerged as one of the world's largest importers of coal. Its import requirement is projected to exceed the 185-million-tone mark by 2015. India first started with import of coking coal during the Janata government under the late prime minister Morarji Desai. In the early 1980s, India's total coal import was just around one million tones. The Tuticorin power plant in Tamil Nadu was the first to obtain permission to import coal for power generation.

More than the quantity, the quality of coal in India has always been a matter of concern. The high ash content in Indian coal, ranging from 35 per cent to 45 per cent, has posed a big problem for coal consumers, over 70 per cent of them being the thermal power generation plants. The poor quality of coal affects the function of boilers. Washing improves the quality, but it is expensive and leads to loss of coal in recovery. CIL can't be blamed for the poor coal quality. But, its good operational practices, especially in open cast mines, can certainly help in reduction of shell content in coal. One can only hope that the private holding in CIL will lead to better management practices, greater operational transparency, higher efficiency, larger investment in technology and bigger production in the coming years. CIL will continue to be an overwhelmingly a government controlled company. And, it is too early to make a proper guess if the small private holding in CIL will bring any appreciable change in its operational style. Much will depend on the attitude of the government towards the CIL management after its part privatization in terms of according operational freedom in pricing and distribution. As for now, there is no reason to be hyped about CIL's performance overnight. (IPA Service)