The battle between Coal India Ltd and its biggest non-government shareholder, The Children's Investment Fund (TCI), is set to become a direct battle between TCI and the government. It is also escalating into a war of words that can do the foreign investment climate untold damage.
When asked about TCI's charge of poor corporate governance at Coal India (CIL), Coal Secretary Alok Perti is supposed to have remarked that if it is unhappy, it should sell its stake.
If this is what Perti really said, it is arrogance and impertinence of the highest order.
Imagine what would have happened if Satyam's Ramalinga Raju, having robbed shareholders, were to say "if they don't like the way I am running the company, they can sell their shares." Clearly, the government is behaving even worse than a crooked private sector promoter.
The Coal India board, which received a letter from TCI asking why it was taking orders from the government on coal pricing, has told the hedge fund that it was aware of no wrongdoing.
An appalled TCI has shot back, calling the Coal India board a "board of shame." Chris Hohn, chief investment officer of TCI, told CNBC TV-18 that there was no difference between the government giving away coal blocks without auction - which the Comptroller and Auditor General's (CAG's) draft report has alleged - and Coal India lowering prices at the behest of the government.
He said: "We believe there is really no difference at all between giving away coal blocks for substantially below their fair market value and selling coal by Coal India for a 70 percent discount to the fair market value...It is, in our opinion, theft of a national asset that belongs to the Indian people on a massive scale."
So what has TCI decided to do about this behaviour where "CIL has broken all corporate governance standards...?"
Answers Hohn: "We have concluded that the initial best course of action is to take direct litigation against the government of India under the bilateral investment treaty with the UK. This will be a quicker process than going through the Indian courts where clearly the appealer process can take years to resolve. Ultimately, we believe the only real solution to this scandal is going to come from the people of India realising that they are the losers."
If this is what happens, this may be the third recent case where a foreign investor is going to take shelter under bilateral investment agreements to bring the government to book.
In the 2G licence scandal, after the Supreme Court cancelled 122 licences issued by Andimuthu Raja, Sistema, the Russian partner in Sistema Shyam Teleservices Ltd, has demanded that the licence issue be solved in reasonable time or else they would ask for international arbitration.
Norway's Telenor has also threatened the same using the India-Singapore bilateral treaty. Telenor's 67.25 percent stake in Uninor is held through a Singapore holding company, Telenor Asia Pte Ltd.
The UPA government, which needs all the foreign investment it can get to avoid an external account crisis and prevent the rupee from crashing, now has its hands full defending its record as a reliable investment partner.
After Vodafone, it now has all its disgruntled 2G licensees and TCI tom-tomming the unreliability of the Indian system.
If, after TCI, other foreign investors also take government to arbitration on everything from non-transparent oil price regulation to arbitrary transfer of profits from ONGC to the oil marketing companies, the UPA's name will be mud. Assuming, it already isn't.
Updated Date: Dec 20, 2014 07:17 AM