Coal ministry wary of TCI's arbitration threat on CIL

New Delhi: The coal ministry has taken the threat from The Children’s Investment Fund (TCI), seeking talks under the Indo-Cyprus Bilateral Treaty, seriously.

Among other things, TCI, in a three-page letter to the government, has sought a meeting on 29 May for an amicable settlement of the issues thrown up by the government’s order to Coal India to roll back price changes earlier this year. TCI believes that this amounts to oppression of minority shareholders, who would have benefited if the price increases had led to higher profits and share prices. If the issues are not settled amicably, the Indo-Cyprus treaty allows parties to seek arbitration abroad.

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The coal ministry, which has so far taken a very aggressive stand against TCI, a UK-based fund which holds just over 1 percent in Coal India (CIL), has begun internal discussions among officials to find a way of avoiding arbitration in a foreign land.

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The ministry has routinely dismissed allegations by TCI over its interference in coal pricing, and insisting on CIL signing penalty clauses for supply defaults to power companies. In effect, TCI has alleged that the ministry’s actions show it has not taken care of the interests of minority shareholders.

The ministry’s view has been that full disclosures were made before CIL went public on the extent of the government’s role in its operations. The Indian Express on Tuesday quoted a Sebi official as confirming that “Coal India Ltd (CIL) made full disclosures in its offer documents as well as regulatory filings of risk factors, including its coal pricing policy. We are satisfied as long as this was done. Investors who invested in the IPO were fully aware of this factor.”

But the threat of yet another dispute going in for international arbitration is being taken seriously. Already, issues such as Vodafone’s retrospective taxation and the cancellation of Sistema’s 2G licences are mired in threats of international arbitration.

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The coal ministry is additionally wary of international arbitration since in the past it has lost a case involving Coal India. 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 will the ministry give a patient hearing to TCI officials in their first-ever meeting on 29 May?

Top official sources told Firstpost that the meeting will be confined to issues under the Indo-Cyprus bilateral treaty and how, if at all, the government of India has violated anything in the treaty. “We will not discuss anything to do with coal pricing, coal block allocation, penalty clauses, etc. These are commercial matters and should be dealt with between CIL and TCI”.

Officials did not say if the ministry will have a conciliatory approach towards any of the issues raised by TCI but did express apprehensions over the matter reaching international arbitration.

These sources said that though a lot of what TCI has said in the past cannot be taken at face value, the fund is raising these issues repeatedly since it wants to raise the share price of CIL and then offload its stake. “All they want is an exit at a certain value. If TCI had issues, it should have aired them in various investor fora where it had a chance to question management practices. No other investor in TCI has raised any such concerns…..we treat all investors on the same platform”.

Nevertheless, senior ministry officials appear keen to at least find an amicable solution to the CIL-TCI standoff. In the latest letter to the coal ministry, TCI’s partner Mark Derbyshire has said that his letter is TCI’s claim under the Indo-Cyprus treaty and that the Indian government should enter into a dialogue with the fund. “Failing such settlements within six months, we reserve our right to initiate arbitration in accordance with article 9 of the treaty.”