Trade unions, arrears come in the way of public offer plan

On October 21, 2010, when Coal India Ltd (CIL) completed its fourth day of the big-bang public offer, it was oversubscribed 15.28 times. It became the biggest IPO in the Indian capital market with non-institutional investors subscribing 25.4 times more, reserved portion of QIBs subscribing 24.7 times more and retail investors subscribing 2.31 times more. The company reserved 10% of the offer for its employees but the employees? portion was subscribed just 0.1 times.

The trade unions then restrained the employees from subscribing but that didn?t prevent CIL from becoming the country?s most valued company in less than a year in terms of market capitalisation. On August 17, 2011, CIL?s market cap exceeded R 2.51 lakh crore and it became a bellwether stock overtaking Reliance Industries Ltd.

CIL?s market cap is now hovering above R2 lakh crore and its stocks have behaved consistently well. So the government has a natural feeling that the markets will positively respond to a CIL follow-on public offer (FPO), through which it can raise between R17,000 and 20,000 crore?crucial to come closer to its disinvestment target of R40,000 crore for FY 14.

But the trade unions, as usual, have come in the way. The unions affiliated to the INTUC, CITU, AITUC and BMS have together put up resistance against the disinvestment proposal and have threatened to go an indefinite strike if the government moved ahead with the disinvestment proposal.

All-India Coal Workers Federation general secretary Jibon Roy said after the disinvestment in 2010, the then finance minister Pranab Mukherjee made an agreement with the trade unions that there would be no further divestment of CIL stakes as long as the UPA was in power. ?We have written a letter to the Prime Minister reminding him of the agreement and sought his

intervention so that the

government dwells on its earlier commitment?, Roy said.

CIL held a meeting with the trade unions on May 29 and according to

R Mohan Das, director personnel, the company tried to convince the unions to agree to the disinvestment. CIL chairman S. Narsing Rao said though CIL would not officially take up the issue, it would take an informal course to persuade the trade unions.

The government, like in the earlier IPO, will reserve 10% of the offered portion for the employees but trade unions say the employees would not respond positively to such options because they are basically against government reducing control of the company. This FPO is a part of the government?s plan to gradually spin off CIL into separate companies and privatise them and so workers would not favour such a move, Roy said.

Though the unions have in principle decided to go for an indefinite strike if the government moved ahead with disinvestment, they would take a final decision at their national convention in the third week of June. ?If the government decides to make the disinvestment in September, then we will have to go on a strike in August. But we are informed that the coal ministry doesn?t want to take the risk of disinvestment right now since the strike, involving all 3.7 lakh CIL workers, would have a cascading effect on power production?, Roy said.

A coal ministry official said the ministry has written to the department of disinvestment, requesting to go slow with the CIL divestment plan. The ministry wants this on four counts.

First, not to hamper the targeted growth of 6% year-on-year to achieve the targeted production of 492 mt in FY 14, crucial in partly meeting India?s growing coal demand. Second, it wants to ensure that coal sales dues worth R10,480 crore as of March 31, 2013 doesn?t become irrecoverable as a fallout of the dispute with NTPC and other gencos over quality and supply issues. Third, it wants Eastern Coalfields Ltd (ECL) to come out of the BIFR, a pre-condition, which was laid when CIL went for its first IPO. Fourth, it wants to ensure that the legal tussle with The Children’s Investment Fund (TCI) doesn?t creep into the affairs of the FPO.

London-based TCI, a minority stake holder, has moved the court demanding R1,500 crore for itself and R2,05,250 crore on behalf of all shareholders as compensation for gaining less from CIL stocks, which could have fetched much more if coal was not under-priced.

To make amends, CIL shifted the pricing regime from useful heat value (UHV)-based pricing to gross calorific value (GCV)-based pricing. This shift raised coal prices by an average 60.17% across-the-board, with the lowest price rise being 4% and the highest being 219%. But consumers like NTPC and DVC are still disputing the shift and that has to be resolved before CIL goes for an FPO.

The dispute has led to mounting coal sales dues, which as of March 31,2013 was at R10,480 crore, an increase of 86.60% year-on-year. CIL ended FY12 with sales arrears of R5,616 crore following a 66.49% rise in arrears over FY11.There are fears that the dues may turn bad and this would send a wrong signal to investors before the FPO. So CIL needs to resolve the disputes and start the process of getting its arrears cleared. A company like NTPC has kept dues of above R4,300 crore as of March 31, 2013, which is recoverable through dispute resolution. But there are issues with other gencos, which are losing their capability to absorb higher prices.

As for bringing ECL out of the Board for Industrial and Financial Reconstruction, it was a pre-requisite when CIL went for the IPO. Both Bharat Coking Coal Ltd (BCCL) and ECL were under the BIFR when CIL became a Navaratna company in 2008. Although BCCL came out of the BIFR, ECL could not as it had the largest coal sales dues.

According to Niladri Roy, secretary technical, ECL, the company has coal sales dues worth R1,100 crore as of March 31, 2013 and these are dues mostly from NTPC. Although the company has been profitable for the last four years, it has to bring down its accumulated losses to zero if it has to come out of the BIFR. Roy said ECL?s accumulated losses as of March 31,2013 stood at R3,291 crore, down from R8,000 crore when it was referred to the BIFR in 1999. ECL?s realisation suffered last fiscal since NTPC paid only R360 for every tonne of coal it got from Rajmahal mines against an average notified price of R840 per tonne for G-10 to G-13 grades of coal.

Now CIL has increased the prices of G-10, G-11, G12 and G13 grades of coal by 34.45%, 35%, 43.93% and 34.32%, respectively, and CIL has announced a special support price of Rs 300 per tonne for ECL coal over and above the increase.

NTPC seems to be agreeing to this pricing since it paid quite a low price for the coal last fiscal. The new price would help ECL to clear its accumulated losses and come out of the BIFR, Roy said.

So it is not just trade unions which came in the way of FPO, CIL?s internal management and finances were also to be set right before the coal ministry could give a nod to the public offer. Also, the government has to tread carefully because elections are hardly a year away. A section in the present government could even block CIL?s disinvestment to avoid a political backlash.