Public sector has destroyed huge value, and the case of Coal India illustrates why

If you want to know how to destroy national wealth, you have to look no further than the performance of public sector companies under UPA watch. Air India is a permanent invalid, living on bailout funds. BSNL and MTNL are stretcher cases. The oil marketing companies - Indian Oil, etc - live on intravenous injections of cash from the government and ONGC.

A story in ET Wealth calculates that over the last three years, listed public sector companies destroyed market values by over Rs 6,83,000 crore, with banks, oil companies, metals and engineering companies doing the most damage. Of this, Rs 5,12,000 crore is the loss of the government, and the rest that of non-government investors.

The government’s loss, which is the wealth loss in shares held by the government in the name of citizens of India, is more than enough to finance four years of food subsidies. Money, effectively, is being snatched from the mouths of the poor.

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[caption id=“attachment_75773” align=“alignleft” width=“380”]  Representationa Image. Reuters[/caption]

While the cases of oil companies and banks is easily explainable - one is the result of fuel subsidies, and the other bad loans to business - less understandable is the wealth destruction in super-profitable Coal India. The coal miner destroyed nearly Rs 50,000 crore in value over the last one year, and nearly twice that amount - around Rs 1,00,000 crore - from its 2010 high of Rs 410 a share.

November 2010 was when Coal India was listed amidst high hopes that the world’s largest coal miner will give investors high returns in an energy hungry country.

But consider where the share price is today - around Rs 244, marginally below the price at which it was sold to investors (retail investors got a slight discount, but most of them sold it - wisely - on listing).

If, after three years and three months, all that India’s richest public sector company has achieved is stay in the same place. It means the nation is not getting its money’s worth from this giant.

According to a report in BusinessLine, Coal India’s Chairman and Managing Director S Narsing Rao has expressed surprise over the drop in the company’s share price. He is quoted as saying: “The reason for drop in stock price is inexplicable. In the first nine months of the current fiscal, we have reported almost similar performance as in the previous year.” He also pointed out that investors had just been fattened with a super high special dividend of Rs 18,317 crore.

Well, Rao should know why investors are unhappy. The high dividend was not the result of brilliant performance, but a greedy finance ministry, which has used up next year’s dividend payments this year to reduce the fiscal deficit. Of the total dividend paid, the government swiped Rs 16,485 crore, and with the dividend tax of Rs 3,113 crore, P Chidambaram knocked off Rs 19,598 crore from Coal India. So he is the only winner, not Coal India shareholders or the country.

Tailpiece: Even as the country is spending huge amount importing coal, Coal India is expected to “miss the production target of 482 million tonnes for the current financial year by around 5 million tonnes”, reports BusinessLine.

There is no mystery to why public wealth is being destroyed: a greedy finance ministry, and not-so-good performance.