KPMG for merger of CIL, subsidiaries

Arpan Mukherjee

Kolkata, Sept 12: Internataional consultant KPMG has recommended a merger of Coal India Ltd (CIL) and its subsidiaries, as one of eight possible ways of restructuring the public sector giant.

KPMG’s report is line with suggestions made earlier by the Coal India Officers’ Association, and contrary to the report of the Expenditure Reforms Commission, as the consultant has not talked of dismantling either CIL or any setup.

KPMG was engaged by CIL and submitted its report in July this year. The consultant says CIL and its subsidiaries should be structured on the lines of Steel Authority of India Ltd, so that losses of weaker subsidiaries can be set off against profits of the stronger subsidiaries.

CIL’s spokesperson confirmed that the merger of CIL and its eight subsidiaries was one of the suggestions made by KPMG. He said the consultant will give a final view next month.

In projecting a corporate structure for CIL, the consultant had to go by factors like tax saving, impact on financials, on operations, viewpoint on other stakeholders and lenders, implementation time and cost and regulatory risks.

Among the options considered by KPMG are: A complete merger of CIL and its subsidiaries, combining all subsidiaries into one company to be wholly-owned by CIL, conversion of CIL’s equity in profitable subsidiaries into quasi-equity or fully-convertible debentures where debt-to-equity is manageable. Loss-making companies will have to be left out of the arrangement, as the conversion will worsen the financials, selective merger of one or more profitable subsidiary with one or more loss-making subsidiaries, transferring of loss-making mines in weak subsidiaries to profit-making ones, where the transfer will be as a going concern or demerger, where the mines will have to be classified as undertaking in line with the norms of the Income Tax Act, transfer of mines through a sale and lease back, or demerger and lease back, KMPG’s suggestions are contrary to those made by the ERC under former finance secretary KP Geethakrishnan. It wants holding company CIL dismantled and the subsidiaries turned into independent companies.

The ERC also wants the centralised marketing setup broken up, with the mining subsidiaries being asked to handle marketing independently.

However, the Coal India Officers’ Association and the industry had pointed out to Mr Shahnawaz Hussain, the coal minister then, that weaker coal companies will not be able to match their stronger or even foreign competitors.

Earlier, the officers’ body had suggested the amalgamation of the subsidiaries and strengthening of the marketing wings in the wake of coal imports.

The Indian Institute of Management, Calcutta, had recommended in February 1998 the strengthening of CIL’s dealer and marketing distribution network to counter the import of foreign coal.

The general secretary of the Coal India Officers’ Association, Mr AR Gooptu has welcomed a hint by the new coal minister, Mr Ram Vilas Paswan, regarding the merger of CIL with its subsidiaries. The Association has suggested an outline of the unified structure apart from pointing out the merits of the exercise.