The ministry of coal has written to the Prime Minister?s Office (PMO) to reconsider the proposal of Coal India Limited (CIL) for floating a foreign subsidiary?Coal Videsh Limited (CVL). This, the ministry said, should be re-examined from the point of view of making CIL a global company.
The reservations expressed by the finance ministry last year over setting up of CVL had scuttled CIL?s plans of floating a foreign subsidiary to acquire coal properties abroad. CIL, in the meantime, decided to join the special purpose vehicle (SPV) being floated by its consumers?NTPC, SAIL and RINL along with the National Mineral Development Corporation (NMDC) for acquiring coal and iron ore assets abroad. The board of CIL has also approved an investment of Rs 1,000 crore by CIL in this joint venture.
However, the coal ministry?s letter to the PMO clearly states that in addition CIL?s participation in this SPV, the formation of CVL be reconsidered and examined from the point of view of allowing CIL to become a global company.
?An expert panel constituted by the PMO is expected to submit its recommendations on making CIL globally competitive. This aspect, therefore, should not disallow CIL from creating a subsidiary for foreign venture,? the ministry wrote to PMO.
The letter further said that the entire business envisaged by Coal Videsh will be at international coal prices and not at controlled prices. ?Therefore it will neither distort the economy of coal in the country nor it will be detrimental to the long term interest of the proposed SPV,” coal ministry told PMO.
Interestingly, the coal ministry said that during its course of interactions with end users like steel, power or cement companies, the general feeling was that rather than backward linkage, the consumer would prefer the company with core competence in coal business to look into the interest of securing coal supplies through acquisitions abroad.
Stating that the situation has been made more complex with constraints of availability of hard coking and semi soft coal reserve across the world, the coal ministry pointed that the market has become more of the sellers market as the best coal resources are being held by a handful of large MNCs.
?The need of the hour is to acquire coal properties, produce possibly from difficult geo-mining conditions and import the produces to India, which demand coal mining competence. CIL?s proposed foreign venture subsidiary would be better placed to handle the foreign acquisition initiative more efficiently than consumers (NTPC, SAIL) and by that way add value to enhancing the energy security of the country,? said the ministry.
Commenting on the finance ministry?s concern for the state owned agency becoming uncompetitive due to high cost of operation/transaction, the ministry said, ?This was unlikely to happen because the entire organisational framework of CVL is driven towards making it competitive.
CVL?s market penetration and retention strategy will be through cost leadership which essentially means optimizing operating and transaction costs across each process in the coal business value chain.?