Failure to raise coal price draws ire

After writing a series of letters to ministry officials and the directors of Coal India (CIL) on alleged mismanagement of the company, institutional investor The Children’s Investment Fund (TCI) has now demanded the resignation of CIL chairman and managing director S N Rao.

In its latest letter, the UK-based fund, which holds 1.01% stake in the company, has alleged that even though the CMD, on numerous occasions, acknowledged the fact that the cost base of CIL has gone up sharply due to rising fuel and wage costs, he has done nothing to raise the price of coal.

?If SN Rao is unable to take decisions as CMD for meaningful increases in coal pricing to correct the business failure, then he is not up to the job. He should be immediately replaced with someone who can run CIL professionally,? states the letter written by TCI partner Mark Derbyshire, addressed to the CIL board.

?It is the most basic of business practices to pass on cost inflation to customers, so as to maintain and grow profits for the benefit of all shareholders, including the people of India. It is incompetence on the part of the CMD and the board that this practice is not being followed,? added the letter.

According to TCI, Rao made a statement in January that CIL needs to keep up with general inflation of 10-12% alongside other rising costs. Thereafter, in February, he said that the R16 increase in diesel prices this financial year would impact CIL’s net income by R1,920 crore per annum.

Despite these costs increases, CIL has not raised prices of FSA coal to power producers since October 2009, says TCI. ?Almost unbelievably, SN Rao also stated on January 16, 2012, that the board of CIL did not even discuss pricing at its January meeting,? states the letter.

The fund has already filed a petition in Kolkata HC, seeking compensation of R1,500 crore from the board of CIL for alleged under-pricing of coal that led to revenue losses running into crores. In the lawsuit filed last year in October, TCI made the government of India also a party for its ?improper exertion of pressure on the company as a majority shareholder?.