Coal India's reserves inflated by 16%, alleges Greenpeace

Mumbai: Is Coal India,the world’s largest producer of coal, inflating its extractable? Non-governmental environment organisation Greenpeace thinks so.

The company has misrepresented its level of extractable coal by as much as 16 percent, says a report by Greenpeace India titled Coal India: Running on Empty?.

The report comes at a time when the government is readying to divest a further 5 percent stake in the public sector company. According to media reports,the government has selected seven merchant bankers for the process.

The NGO alleges thatit has failed to disclose to stock exchanges that the levels of extractable coal is hugely overstated.

Greenpeace India last week filed a complaint with capital market regulator SEBI against Coal India for concealing material evidence on the scale of their coal reserves, violating the terms of the listing agreement under the Indian Securities Act 1956.

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"…The coal reserve figures that CIL is using as a basis for its public offerings as well as for public information, are a wilful misrepresentation of figures despite CIL knowing (on account of admission on its subsidiary’s website) that its extractable reserve figures are at least 16% lower," the complaint states.

“Coal India is trying to deceive its present and future shareholders by hiding the fact that its extractable reserves are almost a fifth less than it claims. Coal India has a legal duty to tell the truth and they are failing to do that,” Ashish Fernandes, campaigner, Greenpeace, said.

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[caption id=“attachment_1128643” align=“alignleft” width=“380”]  While Coal India declared during its 2010 IPO listing that it had extractable reserves of 21.1 billion tonnes, that figure is actuallt 18.2 billion tonnes. Reuters[/caption]

According to the report, the company has not disclosed that as per its internal assessment the extractable reserves stand at just 18.2 billion tonnes and not 21.7 billion tonnes as declared at the time of its IPO in 2010.

Its website and its 2010 red herring prospectus put the figure at 21.75 billion tonnes, based on an old system called the Indian Standard Procedure - despite a decision by the Government of India in 2001 to switch to theUnited Nations Framework Classification (UNFC) for Fossil Fuel and Mineral Resources process.

An analysis by Greenpeace and The Institute for Energy Economics and Financial Analysis (IEEFFA) has shown the company has only 18.2 billion tonnes of extractable coal, according to the UNFC. This figure is also reflected by the Central Mine Planning Development Institute Limited (CMPDIL). This reserve, if extracted at the targeted growth rate of 8 percent, will last for just 17 years.

Supreme Court advocate Shaunak Kashyap, lawyer for the non-profit organisation, said CIL was in legal violation. “Being a public sector and a publicly listed company, CIL has an obligation under the SEBI Act to be transparent and make truthful disclosures.”

“It is a matter of grave concern that a government-controlled company has failed to notify the exchanges of this reduction in their reserves, something that has serious implications for both investors and the country at large,” Kashyap said.

Coal is the most dominant energy source in India in industries like infrastructure, power, steel and cement meeting an estimated 52 percent of primary commercial energy needs in the country, with around 66 percent of India’s power generation being coal-based.

Despite having one of the world’s largest reserves of coal, India is unable to match up to the demand for it. The acute shortage of coal to fire up electricity generation is already hurting power producers and the economy. If CIL’s reserves do run dry in the next 17 years India may face a deep crisis in energy security.

While domestic coal demand touched 772.84 million tonnes (MT) during 2012-13 the production was just 557.60 MT. According to the Reserve Bank of India,India had to import 113 MT of coal during the April 2012 - January 2013 period.

As per the Central Statistics Office, import of coal has steadily increased from 20.93 MT during 2000-01 to 102.85 MT during 2011-12.

Going by estimates, the demand for coal is projected to be around 980 MT in the 12th Five-Year Plan period (2012-17) whereas domestic production is pegged at around 795 MT in the terminal year (2016-17). The gap would have to be met by way of imports.

Even as the Indian government tries to contain its current account deficit, with a depreciating rupee adding to its woes, Coal India could seek 10-15 million tonnes of coal as early as next month in its first tender, a Reuters report said.

As the world’s biggest coal miner continues to miss its own production targets, coal imports are set to hit a record 165 million tonnes in the fiscal year ending March 31, 2014 - not allowing for the government to contain its burgeoning CAD.