The Coal India Ltd board has, in a rare instance, told the government to go jump. A few days back, Power and Coal Minister Piyush Goyal asked Coal India to offer more coal to the power sector by halving its e-auction sales. E-auctions are where CIL makes its most money by selling coal to the highest bidders at market rates.
By asking CIL to cut down on e-auctions, Goyal was effectively telling the company to reduce its profits and help the power sector.
Luckily, the CIL board showed some spine and said no. A Business Standard report, quoting an anonymous Coal India official, says the board “discussed the matter in detail” and decided against any cut in offerings at e-auctions.
Good for the board.
However, this show of spine by the CIL board has some history behind it. Two years ago, a UK-based minority shareholder in CIL, The Children’s Investment (TCI), sent a letter to the board asking it why it had reversed a decision to raise coal prices under pressure from the government. It told the board that it could “no longer tolerate abuse of minority shareholders and poor corporate governance” and threatened to sue it.
TCI sent this letter after the then coal secretary, Alok Perti, asked CIL to review its price hike of December 2011, and the CIL board meekly changed its mind on the hike in January 2012. This was what sent TCI on the warpath , and it duly sued the government and the CIL board.
Nothing much came of that suing, but the CIL board obviously has begun taking its duties to minority shareholders - and its own bottomline - more seriously.
Piyush Goyal is not a socialist who thinks public sector profits are money for jam. The money received as taxes can be spent on misspent in any way, but the profits of public sector companies are theirs - and that of their shareholders. At the very least, he should respect the CIL board’s decision to do what is right for the company.
He should also note that Finance Minister Arun Jaitley is planning to hawk 10 percent of Coal India shares later this year to meet his tough fiscal deficit target.
Asking Coal India to reduce e-auctions means the valuation Jaitley will get on those shares is lower. Effectively, what Goyal gains by asking CIL to sell coal cheaper to power plants will be lost by Jaitley in share valuations. Power plants will benefit, while the national exchequer will lose.
However, the real damage will be done to corporate governance if he goes ahead with his edict. It is high time government realised that the surpluses of listed public sector companies do not belong to the government alone. They belong to all shareholders.
The valuations of ONGC and the public sector oil marketing companies - Indian Oil, BPCL and HPCL - have been dented precisely because profits from the oil and gas production companies have been transferred to the marketing companies in order to subsidise the prices of diesel, kerosene and LPG. Those bills should ideally have been paid by the government alone.
Goyal should actually ensure that this kind of arbitrary transfer is avoided in listed companies, as it amounts to corporate misgovernance.
The UPA government made it to habit to rob one set of companies to subsidise others or consumers. Does Goyal want to continue with such bad practices?
The answer should be obvious.