Following a ‘subtle’ diktat from powers that be, the Board of Coal India Limited (CIL) has approved an ‘interim’ dividend of Rs 18,300 crores out of which Rs 16,485 crores will accrue to central Government.
Together with dividend distribution tax (DDT) of Rs 3100 crores, the Government would have garnered close to Rs 20,000 crores during current fiscal 2013-14 by way of interim dividend alone.
Originally, the Government was contemplating to divest 10% of its shares in CIL to mobilize Rs 20,000 crores which represents 50% of total proceeds from divestment of PSU shares at Rs 40,000 crores.
This was scaled down to 5% in view of mounting resistance from various quarters. Intended to generate around Rs 9000 crores, even this proposal was dropped as trade unions raised their protest pitch.
Determined to reach its destination point, the Government has fallen back on a familiar route that it has employed on several occasions in the past whenever the straight road failed to deliver.
Government may be in an exuberant mood having got a hefty inflow at one shot thereby compensating for a major slice of shortfall in proceeds from divestment close to Rs 35,000 crores at this point. But, this is at a huge cost to CIL!
CIL – India’s so called monopoly producer of coal – has huge responsibility on its shoulders to boost domestic production to meet the ever expanding requirements of power and other key sectors of the economy.
It has signed 157 fuel supply agreements (FSA) with power generators to feed a total capacity of 71,000 MW. These cover commitments only up to 80% of their requirements. Balance any way has to be met from imports.
CIL is also exploring acquisition of assets abroad besides spending on developing already acquired coal blocks in Mozambique. This is to complement domestic availability and ensure un-interrupted supplies to meet our economic needs.
All this will require huge capital expenditure. In fact, CIL plans to spend around Rs 59,500 crores during the 12th five year plan 2012-13 to 2016-17. That works out to about Rs 12,000 crores per annum. Spend during 2012-13 was a meagre about Rs 2500 crores.
There is a lot of euphoria surrounding CIL. The usual refrain is that it is a cash rich company and therefore, it is in a position to contribute to Government’s fiscal consolidation efforts. So, there is no harm in tapping resources available with it.
The Finance Minister Mr P Chidambaram who has mastered the art of innovations in ‘financial engineering’ gives a new twist to serve Government’s interest.
Thus, in a recent meeting with CEOs of central PSUs, he exhorted them to achieve their capital expenditure targets for the year. And, PSUs failing to achieve will have to surrender funds to the Government by way of special dividend. This is paradoxical.
First, an undertaking which is desperately in need of funds to invest for building country’s production capabilities is not allowed to move forward – through denial or inordinate delay in granting approvals – and then, use the resulting situation of surplus/idle funds to plunder those for meeting budgetary needs.
CIL had a cash reserve of around Rs 62,000 crores as on March 31, 2013. Viewed in isolation, this would give a misleading impression that the undertaking is sitting on piles of cash. That this is unconscionable.
We need to view its available internal resources versus investment in the right perspective. Once you adjust the planned capital expenditure during 12th plan, three years down the line, CIL would have no money left in its reserves.
Until hitherto, CIL has been drawing a major portion of its output from opencast mines which are less investment intensive. However, for sustaining the tempo of production, it will have to increasingly depend on under-ground mines. These are more difficult to tap and require investment on a much higher scale.
It is imperative that it conserves resources. Even so, to the extent CIL funds its growth through internally generated resources, there would be less pressure on banks. The latter’s funds can be released funding projects of companies that are not so well placed.
The operations of CIL are afflicted by monumental inefficiencies, wastages and corruption. Despite, Government’s commitment to grant ‘autonomy’ and ‘professionalize’ managements of PSUs, one hardly sees any progress.
Clearly, under the extant dispensation of continued Government control, it is impossible to expect any significant improvement in their functioning. The best way to make this happen is divest its equity holding and bring in private players.
Ideally, Government should divest majority stake to ‘strategic’ players like in HZL and Balco where the private player (Vedanta group) has been able to affect to affect a substantial turn around and all round improvement. The current market valuations of both have increased manifold since these were acquired a decade ago.
That may be too much to expect at this juncture considering the political imponderables as also the fact that India is still lacking in a decisive and firm governance which can countenance threats from labour unions. However, there should be no glitch in going ahead with divestment in small lots.
It is amazing to see Government acquiescing to a virtual blackmail by trade unions over even 5% dis-investment of its equity. Post-divestment of even 10% (as planned originally), it will continue to hold 80% which is well above majority control mark of 51%.
Can’t the mandarins in central Government communicate to trade unions that public character of CIL will remain un-altered post divestment? Can’t they win their confidence by telling that their interest will not be compromised?
On merits, Government stands on rock solid foundation. Seen from every angle, the divestment route in small lot is a win-win for all stakeholders viz., workers, effective & efficient management, exchequer and India’s energy economy.
Yet, if this has not happened and Government has chosen a perverted route for garnering resources for meeting its budget deficit, it only shows the bankruptcy of reforms.
Will new dispensation post-elections at the center bite the bullet?