 "CIL-NTPC tussle: Activist shareholder TCI raises 3 key questions")
By Prince Mathews Thomas
Significant parts of India are facing possible power blackouts due to the ongoing tussle between the country’s biggest thermal power generator NTPC and largest supplier of coal, the government-owned CIL.
Amidst such a bleak scenario, CIL’s “activist” shareholder The Children’s Investment Fund Management has highlighted what CIL needs to urgently do to avoid such skirmishes in the future.
In a letter to the Directors of CIL earlier today, the Fund’s Senior Partner Christopher Hohn says, “Aside from the obvious point that it is extremely bad management to allow such a key customer to become so greatly dissatisfied, it is also indicative of how negligently you, as directors, are doing your jobs that CIL has failed to roll out a comprehensive programme for the use of coal washing.”
[caption id=“attachment_688743” align=“alignleft” width=“380”] TCI has charged the directors of “very serious breach” of duties by not providing any assurance regarding the theft of good quality coal from its mines, raised by it".
Reuters[/caption]
Earlier in the week, NTPC’s Chairman and Managing Director Arup Roy Choudhary wrote to the Prime Minister’s Office that the company may not sign a fuel supply agreement with CIL as “They are giving us poor quality coal … we don’t want it…it is full of stones, boulders and dirt.”
CIL itself refutes the charges. And at the centre of the tussle might be contentious issue of coal pricing. At the same time, CIL could have avoided the latest allegation if it had set up coal washeries as it had promised during its record initial public offering in 2010. Instead, none of the proposed 20 coal washeries have been set up by the company even as the deadline of March 2012 has gone by a year ago.
And it is not that CIL doesn’t have the required Rs 2,500 crore to set up these units. It has cash reserves of Rs 60,000 crores!
Impact Shorts
More ShortsA coal washery separates coal from impurities such as rocks and soil. As Hohn mentions in the mail, coal washeries have three main benefits - its improves quality, gets better prices and also is environment friendly.
The letter raises two other significant issues.
“Further, and despite repeated requests, you have provided us with no assurances regarding the theft of good quality coal from CIL’s mines. As we have made clear in our suit petition before the High Court in Calcutta, We regard this as a very serious breach of directors’ duties.
Finally, it has come our attention that one of ClL’s major competitors, SCCL, is selling comparable coal to power companies at a premium of 60% to CIL’s equivalent FSA prices. Why is it that CIL is unwilling to charge such a price for its FSA coal? How, as directors, can you claim the proper execution of your duties when such disparities exist?”
In his final salvo Hohn says, “lf the current Chairman cum Managing Director is not able to provide solutions to these problems, then it is incumbent on CIL’s other directors to remove him from office and take appropriate steps to have him replaced with someone who is able to run the company effectively.”
It is unlikely though that Hohn will get his answers soon enough.
(Prince Mathews Thomas writes for Forbes India)
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