Govt's pricing policy flawed, Coal India loses $20 bn a year

Coal India loses $20 billion a year because of the government’s pricing policy which requires the company to sell coal at a discount of 70 percent to market prices, saidChris Hohn, chief investment officer of The Children’s Investment Fund, told The Economic Times in an exclusive interview .

TCI, the largest foreign shareholder in Coal India, recently initiated legal action against the government of India, which is the main promoter of Coal India with a 90 percent stake, for hindering the company’s operations and profitability.

In the interview, Hohn also raised objections to the government’s plan to force Coal India to enter into long-term fuel supply agreements (FSAs) with power companies at such discounted prices.

“In principal we do not have a problem with FSAs if they negotiated on pricing at full market prices not at 70 percent discounts and any penalties for failing to meet volumes,” he said. “Given that there is a massive excess demand for coal there is really no reason for the company to commit to these unless they get a premium to market prices.”

All in all, Hohn said the government was acting against public interest in the way it handled Coal India.

“Bottom line is that the company, like all companies, should be run for shareholders without being abused by the government for the benefit of a few politically connected industrial companies who are causing the company to earn lesser profits than it should and damaging the ownership stakes value which is ultimately belongs to the people of India,” he said.