UK investor sues govt for messing around with Coal India

New Delhi: After what looked like several empty threats, The Children Investment Managagement Fund (TCI), a UK-based hedge fund, has finally gone to court against Coal India.

TCI today said it has filed a writ petition in the Delhi High Court seeking to quash the coal ministry’s order on lowering FSA coal prices. FSA coal is coal which is supplied to power producers under Fuel Supply Agreements (FSAs).

In a letter dated 25 January 2012, then Coal Secretary Alok Perti asked CIL to revise the price hike the company had announced in December 2011. A statement by TCI Partner Oscar Veldhuijzen said that the “Delhi High Court was pleased to issue notice to both CIL and Union of India” on quashing this order by Perti.

In December 2011, CIL had increased the prices of thermal coal, but the ministry - which controls Coal India administratively - directed it to roll down the prices. Accordingly, CIL reversed the price hike on 31 January 2012. This is what TCI is protesting against.

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[caption id=“attachment_400605” align=“alignleft” width=“380”]  The coal ministry has taken a very aggressive stand on TCI’s allegations all along, routinely dismissing allegations over interfering in coal pricing .Reuters[/caption]

Veldhuijzen said that in its petition TCI has argued that coal prices are completely deregulated and the ministry does not have legal authority to interfere, something it has been doing on a regular basis. The petition also argues that the January revision in the price is also illegal, being a direct consequence of the illegal and invalid instructions of the Ministry.

In its petition TCI has also sought a direction by the High Court to the ministry not to interfere with the pricing mechanism in any manner.

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Separately, Veldhuijzen has written a letter to CIL’s Chairman and MD Narsing Rao, warning him about how his board of directors has failed to raise FSA coal prices to international levels or even to increase coal washing. “If prompt, transparent and verfiable steps are not taken to properly rectify these breaches of duty…..we reserve the right to take legal action against the directors of CIL as well”.

Legal action by TCI follows a meeting that its official held with coal ministry officials this May where the fund had threatened international arbitration under relevant bilateral treaties unless the government succeeded in protecting the interests of CIL’s minority shareholders. At that time, the ministry alleged TCI was unable to pinpoint the exact clause that the Indian government had violated in the Indo-Cyprus bilateral treaty which TCI was invoking.

Ministry officials had also reiterated that TCI was fully aware of government’s role in various functions at CIL before investing in the company and all its allegations against the Indian government were baseless.

But TCI had alleged that the coal ministry officials admitted to interfering in FSA negotiations between CIL and power producers and that the ministry had agreed to free coal pricing. In the past, TCI has also made allegations of corruption against the ministry, saying that by keeping coal prices “artificially” low, it was helping power producers in getting cheap coal.

The coal ministry has taken a very aggressive stand on TCI’s allegations all along, routinely dismissing allegations over interfering in coal pricing, allowing CIL to put in a penalty clauses in case of supply defaults, allocating coal blocks to private parties below market prices, etc.