Coal news and updates

As the government is preparing ground for Coal India Ltd's (CIL) disinvestment plans, activist body Greenpeace has launched a campaign against the share sale that might potentially turn away foreign investors.

 

The campaign has been triggered by the circulation of a report named "Costly Coal" among potential investors that has raised questions over extractable reserves of CIL, its rising cost of extraction and assurance by the PSU behemoth on how it can manage the political pressures to maintain prices in the face of rising costs.

 

The development comes a day after finance minister Arun Jaitley met ministry officials to decide on CIL's disinvestment process.

 

The government holds 89.65% stake in the near-monopoly coal miner and plans to divest 10%, reportedly in two equal tranches. The process has already started with several merchant bankers appointed and roadshows being held.

 

"Investors will soon be offered further equity (an FPO of 10%) in CIL. This FPO will likely position Coal India as an opportunity for investors in a robust emerging market, on the basis of widely held assumptions regarding India's continued reliance on thermal coal for power generation; and it having among the largest, lowest priced coal resources in the world," Greenpeace said in a communication on Wednesday.

 

"However, new financial analysis undermines these assumptions, and raises important questions for asset owners, asset managers and advisors interested in the upcoming offering," the activist said.

 

While Greenpeace, a globally networked organisation, is known for taking up environmental issues, CIL has been at the receiving end of its tirade for sometime.

 

The non-governmental organisation has enough nuisance value, which became apparent when it came up with an allegation last year that CIL had mislead its investors by understating its extractable coal reserves by 16% at the time of its public offering.

 

Greenpeace had even filed a complaint with market regulator Securities and Exchange Board of India, which saw CIL scrip take a beating at the bourses on that news.

 

That allegation of understating reserves has been made once again this time along with a fresh one involving issues over rising production costs.

 

"Using the Right to Information Act, Greenpeace requested data from CIL's major coal producing subsidiaries on mine-level cost of production from the financial years 2007-08 to 2012-13. As per CIL's RTI responses to Greenpeace, Coal India's average cost of production for thermal coal across all subsidiaries has increased 60% since 2008. If Coal India were to continue on this cost trajectory, it would force CIL to nearly double the price of its coal by 2020 to keep current margins intact," the report said.

 

Average production cost per tonne has increased 64% from Rs 663 in 2008 to Rs 1,088 in 2014, it claimed.

 

"If rate of cost increase remains steady, CIL's cost of production for thermal coal will double by the year 2020, to approximately Rs 1,900 per tonne, up from Rs 950 in 2013. The rate of increase in fixed contracted prices has not kept pace with increase in production costs, leading to lower margins," the report added.

 

 

Source: DNA