Narendra Modi exploring breakup of CIL, opening sector to foreign investment

May 22 2014, 00:12 IST
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The world’s largest coal mining company has failed to meet its output targets for years The world’s largest coal mining company has failed to meet its output targets for years
SummaryThe world’s largest coal mining company has failed to meet its output targets for years

Newly elected prime minister Narendra Modi is exploring breaking up state behemoth Coal India (CIL) and opening up the sector to foreign investment to boost output and cut imports, said two sources with knowledge of the matter.

Red tape, strikes, protests against land acquisition and delays in obtaining environmental approvals have kept coal output far below demand, making India the world’s No.3 importer even though it sits on the fifth-largest reserves.

Modi wants to fix the coal sector quickly to ensure unbroken electricity supply across the country, as in his home state of Gujarat where manufacturing has flourished. Coal generates more than half of India’s power and is the cheapest form of energy.

Any reform will begin with CIL, as it accounts for 80% of India’s total coal output, said a source at Modi’s Bharatiya Janata Party (BJP). The world’s largest coal mining company has failed to meet its output targets for years.

“The story is about Coal India, whose productivity as we all know has been poor,” said the source, a member of the BJP’s economic policy team.

“What we have in mind is bringing changes inside-out in the company within a stipulated time period.”

There is a possibility of converting various units of CIL into independent companies, and making respective state governments equity holders to help speed up land acquisition and other such processes, a top CIL official said.

Credit Suisse analysts Neelkanth Mishra and Ravi Shankar wrote in a May 19 note that disappointing domestic coal output is one of the main reasons for the slowdown in investment cycle. Raising coal volumes is likely to be a top priority for the new government, they added.

“The only meaningful solution, though much harder to implement, is to either break Coal India up, and divide ownership of its subsidiaries among the states where they operate, or in some way introduce an incentive structure so that the respective state governments participate in the growth of coal mining in their states,” they wrote.

Sources say no big-bang steps should be expected immediately as lot of consultation is still going on. But the thumping victory will make decision making easier.

Apart from using modern mining technologies to boost efficiencies and convert “challenging mines into modern mines”, the government will also explore international private-sector partnership in a significant way, said the BJP source.

Another idea under consideration would be to auction coal blocks through open tenders, as India already does for

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