Government-owned Coal India Ltd (CIL) is among the 31 companies on the disinvestment list. The company, the leading supplier of fuel to the power sector, a key component of India?s growth trajectory, aims to become a global player and is scouting for a foreign partner. Chairman Partha S Bhattacharyya, who recently received the SCOPE Award for excellent and outstanding contribution in public sector undertaking (PSU) management, spoke to Indronil Roychowdhury on a range of issues from CIL?s cash reserves, impending IPO plans, future mining plans to its fat wage bill. Excerpts:

CIL is among the PSUs put on the disinvestment list. When will you be able to come out with an IPO and how will it help CIL?

As a company with Navaratna status, we are supposed to get listed by 2011, but with the disinvestment programme being rolled out, we would possibly hit the market within a year from now.

We want to make use of this opportunity to strengthen our resettlement and rehabilitation policy. Land is virtually like a raw material for expanding our mining operations and we need to expand fast in order to meet the energy needs of the country. So, making our resettlement and rehabilitation policy as friendly as we can for the project-affected people is an imperative. Giving shares in lieu of land is definitely going to be a welcome measure. This will enable us to get land much faster. The other beneficiaries, of course, will be our employees. We would like to make our 4.1 lakh employees stakeholders in the whole process. If they are stakeholders, I am hopeful that the stock will perform very well in the market. So,it should really mean some sort of a wealth sharing with the employees.

Do you think you will have an edge over other PSUs when you hit the market?

We do have an edge. Size-wise, we are possibly the biggest of the PSUs that have been put on the disinvestment list. And we have advantages like unconstrained demand for coal in the domestic market and its price potential, which many PSUs may not have. Coal India will become a global operator once we tie up with a foreign partner. This will add value to our entire system. Intelligent investors will definitely look into these issues.

We have a huge cash surplus. So, our expansion plans are not really dependent on incremental raising of resources through the capital market route. The government is going to offload its shares; so it would take the entire proceeds.

Since you are a critical player in India?s energy landscape, do you think you would be able to command the right price for your equity share?

The capacity addition programme in the power sector is doing much better during the current Plan period than the earlier one. As a result, coal demand from that sector is increasing, faster than the rate at which our production is growing. So there will always be a short supply of domestic coal and this will create a situation of unconstrained demand. But you can?t set your price exactly where you like. It is also a question of market sentiments.

When it came to managing our cost increases, we have increased prices and there has been no disturbances. But the price potential rests on the fact that CIL coal is available at a deep discount to international prices even when you compare the prices at per million-kilocalories basis. Now we are looking at a situation of supplying 50-60% of coal going to the market in a washed form in another 5-6 years against the current level of supplying only 10% in the washed form. As we go into more supply of washed coal, we will have a strong case for moving towards international pricing. The potential we have on the price side will gradually unveil as we go more and more into the washing of coal business.

Are these the strong fundamentals you are banking on to perform well in the market?

They indeed are. The fundamentals of CIL are very strong not only for these two reasons but we also have another major upside and that is our manpower reduction.

In the last 15 years, we have reduced our manpower from 6.7 lakh to 4.1 lakh. In the same period, production has doubled from 200 million tonnes to 400 million tonnes. Our natural attrition is about 15,000 per year and only 20% of that, or around 3,000 people per year, will be our new intake. So this aggregate reduction of 12,000 people from our workforce can continue for 10 years, which means we are looking at a scenario of production going up from 400 mt to 700 mt and manpower coming down from 4 lakh to 3 lakh. So it is a huge advantage on the cost side.

Do you see the cost of production coming down in the near future?

Not exactly. Manpower is only one part of our costs. We have to go into more and more underground mining and absorb more modern technology, which will call for higher expenditure. Added to this are environment issues that have to be taken care of in a better manner, eventually increasing the cost on this count a bit. So, the cost of operations will go up in 5-6 years and this ultimately would have to be borne by consumers.

What is the biggest challenge you face as you aim to be on a high-growth trajectory?

Uprooting forests and shifting tribals. It brings with it the huge issue of environment and social sustainability. Most of our coal reserves are in forestland and we need to have access to it. But for exploration and drilling activity, which will bring the inferred and indicated category under proven category, we will not have to clear forests. So we have sought clearance of the environment and forest ministry to get access to forestland for drilling and exploration.

You have already started acquiring foreign coal blocks. What sort of arrangements are you looking at to ensure that the Indian market absorbs enough foreign coal and your supplies are steady?

Imports are growing at 20% and that would stabilise in the short to medium term. But we want to do more than import. We have acquired two blocks in Mozambique and got exploration licence for them. But infrastructural issues need to be addressed and that would take some time.

To make more coal available from abroad, we are trying to reach strategic alliances with foreign coal companies. We are trying to bring that coal at a price, which is distinctly at an advantage to imported prices. Moreover, the Indian coal market is not volatile. Once in 2-3 years we increase prices and so while bringing foreign coal we have to ensure that the FOB price is free of volatility through a cost-plus arrangement. Also, for controlling freight rates we may become a bit more aggressive by acquiring ships or allocating some captive ships for transporting foreign coal. We are trying to tie up with the right kind of ports, free of detention, for our foreign coal handling. If we can supply foreign coal at a stable price, the country will develop an appetite for it.