NEW DELHI: The government is likely to issue a presidential directive to Coal India (CIL) on fuel supply pacts tomorrow. This would force the state-owned miner to sign fuel supply agreements (FSAs) with power companies at 80 per cent commitment levels. The move would upset shareholders of the world’s largest coal producer, but ramp up fuel availability for power projects of 30,000-Mw capacity.
The move is being planned after board members of the Bombay Stock Exchange-listed company approved an FSA with power companies last week, but turned down a Prime Minister’s Office (PMO) diktat that asked it to give 80 per cent commitment. “The files for issuing the directive are almost ready. The matter would be sorted by the afternoon on Tuesday,” a senior official close to the development told Business Standard.
After a high-level meeting with a delegation comprising chiefs of the country’s most powerful companies in January, including Tata Sons chairman Ratan Tata and Anil Dhirubhai Ambani Group chairman Anil Ambani, the PMO had set a deadline of March 31 for CIL to sign full supply agreements for all projects commissioned before December 2011.
CIL missed the deadline, as its board members, after three hurried meetings last week, turned down the high commitment supply, fearing heavy penalties due to a historic dip in production. CIL’s second largest investor, the London-based The Children’s Investment Fund, has already threatened legal action against the board for what it calls “failure of fiduciary duty under pressure from the government”.
The company had later said it wanted more time to bring dissenting independent directors on the board and it would seek a clear directive from its parent, the coal ministry. Coal minister Sriprakash Jaiswal on Monday said the ministry was “positive” on signing FSAs soon, but a presidential reference would be resorted to if the need arose.
Under Article 33 of the company’s articles of association, the President of India, by virtue of holding a majority of equity share capital, has the power to appoint non-retiring directors on its board, not exceeding one-third of the total board members. The government holds a 90 per cent stake in CoalIndia.
Experts and analysts are holding their breath on the issue of a presidential reference tomorrow — an event they termed “highly rare”. “It would be a very rare event, and would severely impair Coal India’s independence in decision-making. This step, if taken, would not only undermine the company’s autonomy but send a wrong signal to investors, too,” said a senior analyst from an accounting and consultancy firm, on the condition of anonymity.
Coal India’s production remained flat at 431 million tonnes (mt) in the financial year ended March 2011. The company’s production growth this year declined for the first time in its recent history, as delayed clearances, heavy rain and workers’ strikes took a toll on output. The target for this year has been brought down to 440 mt from 452 mt. The company’s share price at the Bombay Stock Exchange on Monday closed at Rs 340.5, down 0.7 per cent, compared with the previous close.