Coal Min meets its detractor TCI: but who said what?

New Delhi: Will the tussle between the Ministry of Coal and The Children’s Investment (TCI) Fund over the latter’s investment in Coal India Ltd (CIL) be dragged to an international court for arbitration?

Confusing signals emerged after a one-and-a-half hour meeting between senior ministry officials and the lone representative of TCI on Tuesday. While the ministry alleged that TCI’s Partner Mark Derbyshire could not pinpoint the exact clause that the Indian government had violated in the Indo-Cyprus bilateral treaty and, therefore, there was virtually no reason for any international arbitration, TCI begged to differ.

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Among other things, TCI has objected to the government’s intervention in Coal India’s pricing policies which are detrimental to minority shareholders’ interests. TCI initially threatened legal action, but has since invoked the Indo-Cyprus Bilateral Investment Treaty for protection of its investments.

Official sources told Firstpost that Derbyshire was unable to tell them which lauses in the treaty had been violated. They also reiterated that TCI was fully aware of the government’s role in CIL’s decision-making before investing in the company. All its allegations against the Indian government were baseless.

“Nothing has changed post the IPO. We (Government) continue to be the largest investors in CIL. TCI as well as other investors were well aware of the government’s role in CIL’s functioning before they invested in the company”.

But TCI had a different version of the meeting with ministry officials. According to sources, coal ministry officials admitted to TCI officials about the government’s role in brokering Fuel Supply Agreement (FSA) negotiations between CIL and power producers. The fund also alleged that the ministry agreed to free coal pricing, allowing CIL to determine the price of this commodity. “But the ministry of coal has not indicated how it intends to repair the damage that it has caused by interfering in coal pricing earlier this year”.

The fund 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.

TCI is now set to meet Coal India’s Chairman and Managing Director S Narsing Rao and other senior officials of the world’s largest coal company over commercial issues, though no date has been fixed for this meeting. Meanwhile, Coal Secretary Alok Perti said after the meeting that there was no need for arbitration with TCI and the issues could be solved amicably. “I have told TCI that if they have any issues they can send us a representation. In case of commercial issues like pricing, they should talk to Coal India”.

The ministry had taken a very aggressive stand on TCI’s allegations all along, routinely dismissing allegations over interfering in coal pricing, allowing CIL to put in penalty clauses in case of supply defaults, allocating coal blocks to private parties below market prices, etc. But in recent weeks, the ministry was getting worried over TCI’s threat to take the entire matter to international arbitration under the Indo-Cyprus treaty. This is one situation the ministry wants to avoid at all costs.

In the past, the Indian government has lost out in a case where CIL was in dispute with an Australian company where the latter alleged that its interests as an investor were not protected by the Indian government despite a bilateral treaty. So Tuesday’s counter assertions by the ministry officials and TCI are a bit perplexing.

In March, TCI had said in a letter to the finance ministry: “The Republic of India’s recent conduct with respect to CIL has seriously impaired the business activities and operations of CIL and has contravened each of the treaties”. TCI is the biggest foreign investor in CIL and has a minority stake of over one per cent. It has been accusing the company of not protecting minority shareholders’ interests and harming the company by not opposing fuel supply pacts. Apart from invoking the bilateral treaty clause, TCI had indicated earlier it would also take legal action against CIL board for breach of fiduciary duties.

The allegations by the hedge fund against CIL include under-pricing of coal in the fuel supply agreement compared to the market level and tardy progress in setting up of washeries, among other things. TCI’s investments in CIL are through TCI Cyprus Holding Ltd and Talos Capital Ltd.