The disappointing results of CIL show that it needs a new framework from planning commission to operate with mines developers and operators (MDOs) to harness synergy
Coal India (CIL) is beset with a lot of problems. The second quarter profit at Rs3,052.35 crore is marginally lower than last year's profit in the same quarter, due to increase in cost of production. Although there was an increase in sales through e-auction at 12.88 million tonnes (mt), the realisation per tonne was lower at Rs1,418, a tad cheaper by Rs19. Last year's production was 452 mt, half of which was obtained through the services of Mine Developers and Operators (MDOs), who have three to seven year contracts and who paid for every tonne of coal mined.
The government did not arrange for their replacement and only three of them were "re-appointed" last month, with still four more to be filled. It is a pity that the government did not nominate new directors or propose re-appointment, at least 90 days before the existing independent directors retired.
From the operational side, in order to move the mined coal, CIL has to depend upon the use of heavy duty dumpers of 190-240 tonne capacity, which are manufactured only by a few makers like Komatsu, Caterpillar, Liebherr and Belaz. These are not made in India and so miners are obliged to import them at great cost. In fact, the most important element is the tyre, costing around Rs4 lakh each, with a 5,000 hours guarantee. But, due to the extremely difficult terrain, the tyres wear out fast. If maintenance costs are included, it would mean that each dumper would cost in excess of Rs50 crore!
It appears, in the last tender, except for Belaz of Belarus, others objected to the inclusion of tyres in the maintenance cover, but CIL did not place the order on this sole tenderer. This kind of vacillation is detrimental to progress and the work suffers as a result, since dumpers are useless without the tyres!
It may be recalled that Coal India is in the process of divesting 5% of its equity shares held by the Government of India, sometime in December, which is expected to fetch about Rs8,000 crore for the exchequer. This move has been opposed by the five major trade unions and if the opposition gathers momentum, chances are that this may have to be postponed.
In the meanwhile, seven of its independent directors have retired this year and, in spite of knowing this essential need to run the day-to-day operations and take major decisions, the government did not arrange for their replacement. So far only three have been "re-appointed" with four more left to be filled. It is sad that the government did not deem it essential to either nominate new independent directors or re-appoint some of the existing ones, at least 60/90 days before their retirements were due. Such inaction also hinders the work of chief managing director, Narsing Rao.
Because of the need to develop our own resources and not import coal at high value, it appears CIL sought the assistance of Planning Commission to draw up a suitable model concession agreement (MCA). As a result, the Planning Commission has now come out with a draft proposal that is comprehensive; but the bottomline is that the MCA holds CIL to be ultimately responsible for everything, starting from getting the required approvals, clearances for land acquisitions, matters relating to rehabilitation issues, Ministry of Environment and Forests (MoEF) and state clearances etc, which simply means, handing over a ready to operate mine, on a silver spoon, to an MDO! We need to study this entire document in detail to be able to comment further and make suggestions for consideration.
We are constrained to observe that CIL is already overburdened with handling so many units and to ensure continuous coal supplies to the needs of one and all. They cannot be further burdened with the responsibility of obtaining clearances from all concerned to make it easy for the MDOs to operate. We feel that the MDOs should be actively associated in getting the job done, rather than make CIL work for them!
(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)
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Nifty may head lower again given strong macro headwinds
As suggested by us on Wednesday (Is BSE Sensex likely to move up on Thursday?, the market today broke the seven days of losing trend and ended in the positive. The National Stock Exchange (NSE) recorded the rise on a lower volume of 52.69 crore shares. However, there was little conviction in today’s rally has the market fell later in the day below the opening level.
The Sensex opened at 20,351 and hit a high of 20,569 from where it went down 221 points to the level of 20,348. The Sensex closed at 20,399 (up 205 points or 1.02%) while the Nifty which opened at 6,037 and hit the low almost at the same level. The Nifty hit a high of 6,102 and closed at 6,056 (up 67 points or 1.11%).
Except for Pharma (down 0.76%) all the other indices on the NSE closed in the positive. The top five gainers were Auto (3.00%); Bank Nifty (2.74%); Realty (2.48%); PSU Bank (2.32%) and Infra (2.31%).
Of the 50 stocks on the Nifty, 38 ended in the green. The top five gainers were Axis Bank (6.06%); Tata Motors (5.34%); Jaiprakash Associates (5.09%); Tata Steel (4.84%) and Bank of Baroda (3.76%). The top five losers were Coal India (3.54%); Cipla (2.33%); Sun Pharma (1.82%); Asian Paints (1.62%) and TCS (1.11%).
Of the 1,230 stocks on the NSE, 760 rose, 403 fell while 67 remained unchanged.
Reserve Bank of India (RBI) governor, Raghuram Rajan, tried to assure on Wednesday that India will be able to fund current account deficit and would be able to deal with a global market sell-off. He also assured that he would move slowly if needed in winding down an oil window that provides dollars directly to state-run oil companies, while announcing a bond purchase of Rs80 billion on Monday to inject liquidity in markets.
The headline inflation accelerated to an eight-month high of 7% in October, mainly driven by higher fuel and manufactured goods prices, government data showed on Thursday. Wholesale prices, India's main inflation measure, had risen 6.46% in September. Food prices rose 18.19% year-on-year in October, slower than an annual rise of 18.4% in September. The WPI inflation reading for August was revised to 6.99% from 6.1%.
The stock markets will remain closed tomorrow, 15 November 2013 on account of Moharram.
The US market indices closed at a new high yesterday. Janet Yellen, nominated to be the next chairman of the Federal Reserve, fuelled the speculation that she will continue the central bank's stimulus policy as chairman.
All the Asian indices ended in the green. Nikkei 225, top gainer, was up 2.12%. European indices were trading in the green. US Futures were trading marginally higher.