Companies & Sectors
ICRA flip flops on Coal India prospects

Three months ago, the rating agency gave the highest rating for the IPO of the monopoly coal producer based on 'strong fundamentals'. Today, it says new thermal power projects will suffer due to a demand-supply gap that is widening. Did it ignore the risks?

Barely three months after the rating and research firm ICRA assigned the highest grade for Coal India's (CIL) initial public offering on the back of 'strong' fundamentals, it has started talking about a shortfall of coal production for new coal-based thermal projects.

ICRA, an associate of Moody's Investors Service of US, in its latest report, says, "The spurt in demand has led to a significant rise in import levels, given the failure of domestic coal production to keep pace with the increasing demand because of structural bottlenecks that prevent quick commissioning of mining projects." The domestic production of course predominantly comes from CIL.

The same rating agency, three months ago, gave the highest grade, '5/5', for the CIL IPO citing strong business fundamentals as well as financial strength. It had said that CIL is the largest coal producer in the world and owns vast reserves, a highly favourable demand-supply situation in the domestic coal industry, and that this monopoly in the coal industry is expected to result in strong growth prospects for the company.

CIL accounts for around 80% of India's coal production and provides around 70% fuel for the country's thermal power plants. The Coal India IPO, which was oversubscribed 15.3 times, raised Rs15,000 crore from the market.

The question is, what fundamentals were taken into account while assigning the grade-coal reserves, the monopoly of the company or its financial figures? It seems that credit agencies and industry experts do not bother to pay attention to risks in the nature of business of state-owned companies in which the government has tight control.

In its recent report, ICRA says, "The demand-supply gap in the domestic industry is likely to widen significantly over the medium to long term as many large-size, coal-based power projects are expected to commission over this period. Many of these projects were conceived on the premise that domestic coal would be available to them in the required volumes."

"While such projects have been able to secure letters of assurance (LoAs) from the Coal India group, such contracts actually guarantee coal availability of 50% of their annual requirements from domestic mines," the report says.

Since environment minister Jairam Ramesh slapped the Comprehensive Environmental Pollution Index (CEPI) on many of its coal blocks, CIL has lowered its production target for this financial year by 3.5% to 444.50 million tonnes, and for FY12 the company has reduced the production target by 8% to 447.50 million tonnes.

Lower supply of coal in the domestic market will force power companies to import coal. Coal prices are higher and volatile in the international markets and this would eat into power companies' margins. The report says that higher coal prices for new thermal projects will impact returns and undermine the debt service capabilities of the project promoters.

According to the report, domestic demand for coal witnessed a compounded annual growth rate (CAGR) of over 8% between FY2006 and FY2010, while production CAGR was under 7% during the same period, due to several issues like environment clearance, land acquisition and political unrest in coal-producing regions.


Source: Outcome Budget of 2010-11, Ministry of Coal and ICRA research

The graph (Coal demand-supply position) shows that though the state-owned company sits on largest reserves, or produces the highest amount of coal in the world, India has been largely dependant on imports.

ICRA estimates that the demand-supply gap will increase further as many thermal projects are being commissioned. It says that the installed capacity of coal-based thermal power plants increased from 71GW in FY2007 to 90GW at the end of November 2010. By the end of FY2012, ICRA expects the thermal power capacity would be 113GW.

Demand from other industries, including steel, aluminium and cement is likely to be very high in the next five to seven years, although a number of thermal power plants are likely to be based on imported coal.

ICRA expects coal production in the country to grow at the historical rate of around 7% per annum. This could see the demand- supply gap increase to more than three times over the next five to seven years from the current gap of 67 million tonnes, a clear indication that the power sector will largely depend on import of coal.

Interestingly, ICRA also says that the Ministry of Coal from its Mid-Term Appraisal report for the 11th Plan period has reported that to bridge the gap the country would require to import 83 million tonnes in FY12. CIL, in its red herring prospectus, had said that it would face a deficit of 110 million tonnes and 235 million tonnes in FY11 and FY12 respectively, if all thermal power plants with LoAs from CIL are commissioned on time.



Albert Rodrigues

6 years ago

I still don't understand how the two are related. There is a clear under-supply of coal in India and it is not going to be possible to meet the entire demand locally. The additional requirement will have to be met through imported coal. There have been issues political, social, environmental, etc. for commissioning of coal mines, however, the facts mentioned above, only strengthen the case for Coal India. Being a monopoly in strong demand market conditions as appose to select international markets, the capacity is going to be nearly fully utilized for Coal India. I don't see how the latest ICRA report goes against the IPO grading done by ICRA, CRISIL or CARE. The credit rating agencies internationally do not have an illustrious past, but be logical before misleading investors and other readers.



In Reply to Albert Rodrigues 6 years ago

This is the link:
"It seems that credit agencies and industry experts do not bother to pay attention to risks in the nature of business of state-owned companies in which the government has tight control"
ICRA underestimated the risks. Isnt this obvious?

Regulator recommended action against erring cos: TRAI to SC

In its 19-page affidavit to the Supreme Court, the telecom regulator wrote to DoT that Idea and Spice had violated the terms and conditions pertaining to roll-out obligations and the merger between the two companies were in violation of the guidelines for the intra-service area merger

New Delhi: The Telecom Regulatory Authority of India (TRAI), which has come under the scanner for its alleged inaction in the second generation (2G) spectrum allocation scam, today told the Supreme Court that it had from time to time recommended to the government action against erring companies, including cancellation of licences of Idea Cellular and Spice Telecom for some circles, reports PTI.

TRAI said the two companies failed to fulfil roll-out obligations and their merger was in violation of rules.

"The authority (TRAI) wrote to DoT that Idea and Spice are in violation of the terms and conditions pertaining to roll-out obligations and the merger between the two companies is in violation of the guidelines for the intra-service area merger," it said in its 19-page affidavit.

"Hence, the licenses of Idea in Punjab and Karnataka service area and Spice in respect of Maharashtra, Haryana and Andhra Pradesh service area may be cancelled," the regulator said.

The regulator also submitted it had recommended to the government in November last year to take punitive action against the telecom companies for not fulfilling their roll-out obligations.

"The authority wrote to DoT stating that 69 licenses out of 130 did not fulfil the mandatory roll-out obligations and recommended that immediate necessary action be taken by the DoT against them," TRAI said.


RTI Act is the only people-friendly law; use it

Right to information is a formidable weapon that promotes transparency and helps to curb corruption. While there are some drawbacks that can be addressed separately, we must use this law to its full potential

Just who can use the Right to Information Act? This would seem a strange or at best stale question, considering that the Right to Information (RTI) was implemented in 2005, on 12th October to be precise. But a little over five years later, the question is still relevant, as many people continue to be ignorant of the potency of this Act that could give them the information they seek, sometimes resulting in justice for oneself-all with the power of just a pen and paper.

The beauty of the RTI Act is that it is very Gandhian in its nature, as it non-violently demands information from public authorities (government departments) who are compelled to provide it under this law. Prior to this Act, the executive and the legislature took umbrage under the Official Secrets Act, 1923, and evaded making any information public. When the RTI Act came into force, it generally overruled the Official Secrets Act (which strangely has not been made null and void as yet). So, if any officer tells you that he is forbidden from revealing information under the Official Secrets Act, do tell him that the RTI Act has nullified it, even though it may still exist on paper.

Besides, all government departments across the country have been directed to suo moto disclose information in the public domain, preferably on a website, under Section 4 of the Act, within 120 days after the Act was implemented, and to update information at regular intervals. Many of them either have not done so, or have uploaded inadequate information (read as, that which is convenient to them).

We shall discuss, in another article, the intricate details of Section 4 which empowers the citizen to procure information faster than a written application under Section 6. Suffice to mention for now that inspection of files (under Section 4) can be done by any citizen by simply visiting a government office, and using the right to go through the official documents, as well as demanding and getting photostat copies/CDs of the required documents. Of course, certain documents cannot be revealed under Section 8 (which also we will understand with examples).

The best thing about the RTI Act is that the Public Information Officer (PIO)-the designated officer to whom the application is sent-cannot ask you the reason/purpose for your seeking information. Section 6(2) clearly states, "An applicant making a request for information shall not be required to give any reason for requesting the information or any other personal details, except those that may be necessary for contacting him." It does not matter who you are-you could be a criminal-but you have the right to get the information.

A unique example comes to mind. Several years ago, when I was working with a national daily, our resident editor received a very well written inland letter in English from a prisoner, who was serving a life sentence for murder in Yerawada Central Prison. He was kept in the Open Jail due to his good behaviour. However, after he led an agitation-joined by many fellow prisoners-against bad quality food being served in the jail, the authorities decided to put him in the closed prison as a punishment.

Humiliated, he filed an application under Section 6 of the RTI Act, demanding a copy of the Prison Manual Act, to find out the reasons under which he was transferred to the closed jail. Predictably, his application was rejected and, therefore, he dashed off a letter to the newspaper. My editor asked me to follow up the story. I called up the Inspector General (IG) of Prisons and asked him the reason why the prisoner's application was rejected. There was a flutter in the police office as the IG asked his officers to have the RTI application re-written by the prisoner and within 24 hours the prisoner received a copy of the prison manual. What happened after that is another story, but it highlights how people-friendly this Act is.

In all other laws, it is the citizen who is at the receiving end. For example, if you disregard the red traffic signal, you could face action from the traffic police. If you do not pay your income-tax in time, you could be penalised. However, in the case of the RTI Act, the public information officer has to supply the information asked for within a time frame (30 days, if it is under Section 6, and instantly if it is under Section 4) when the citizen (applicant) demands it. Else, he could be penalised. (This has not been implemented in right earnest as most of them are given a hearing and pardoned.) The applicant can appeal to the first appellate authority (a senior officer of the department given this additional charge), or the second appellate authority, that is, the information commissioner.

Recently, Lucknow-based Aishwarya Sharma, all of nine years old, filed an application under the RTI Act about a garbage heap in front of her school. Thanks to her initiative and the amplification of the issue by the media, the overflowing garbage dump has been taken away and a library has come up at the spot. Teenagers in various parts of the country and those who have appeared for competitive examinations have filed RTI applications to demand copies of their original answer sheets, when in doubt about the marks they have received. While some have received them, most have had to file second appeals before the information commissioners who have given favourable decisions.

As per the official record at the State Information Commissioner's office in the Pune Division, 70% of the applicants seek personal information. But as information commissioner Vijay Kuvalekar states, most of them reflect social trends that affect many.

Of course, the RTI Act is not a magical wand, as procuring information requires perseverance. At times, rejection of the application can make one skeptical about the Act. There are cases of misuse also. But, overall, it is a formidable weapon for the common man that promotes transparency and helps to curb corruption, and since it has come more than five decades after Independence, we should use it to its full potential. Drawbacks such as its misuse could be addressed by experts. Each one of us should conserve and strengthen the Act by invoking it.

(The writer is a senior editor, author and convener of Pune Metro Jagruti Abhiyaan.)




6 years ago

good , need to be frequantly updated with examples so that non compliance by PIO u/s 8 can be taken up.

Sivaraman V

6 years ago

The RTI is not effective where there is inaction on the part of the concerned offices. Its does not compensate for the deficiency in services. There must be a right to services act to compliment RTI so that we can demand service for which we are eligible. After having paid the price or taxes we must get the desired quality of service.


6 years ago

I have found that the departments have stopped responding to ordinary letters and act only on RTI reminders. Secondly the responses tend to be vague and legalistic. Thirdly, they turn hostile and do whatever they can to "teach you a lesson" not to use the RTI if you know what's good for you.

In many states, recently retired IAS officers are given the cushy assignment of the RTI Commissioner, so that they effectively oversee all questions pertaining to their sojourn in the departments, which makes the citizens uncomfortable.

Nagesh KiniFCA

6 years ago

It is heartening to read Vinita's report on the RTI and that 9 year olds and prisoners with good behaviour succeeded.
RTI is in deed an excellent Gandhigiri tool made available to aam admi. It has worked wonders and I can vouch for from my experiences of filing a dozen applications with a cross section of authorities.
One of the most user-friendly suggestions is that the applicant seek inspection of documents and pay for photocopying the rather that ask for the info. It works faster.
Take three copies of the RTI application to a bigger Post Office pay Rs.10 and they'll not only despatch it for you but the reply within 30days will come back via the PO route Regd. AD.
During his keynote address on the Anniversary of the RTI Justice Dr. Dhananjaya Chandrachud asked why RTI is not applied in the private sector which is availing so many benefits. He's very right.
My own experience is that RTI and its "sister" PIL are grossly missued and abused by of all persons the so-called highly qualified and educated elite pseudo intellectuals masquerading as fake RTI Fraud Activists. I personally know of a single case of abuse by the same frustrated individual filing over 100 RTI applications and 3 frivilous and repetative PIL on a solitary issue against the Municipal Corporation, Such a waste of time and money for all including the Chief Justice's Court. This needs to be curbed urgently by nipping it in the bud before it turns into a massive flood - only the media like Money Life dedicated individuals and NGOs with the assistance of the Bar Councils can bring this about. I've made a small beginning. Those really concerned are welcome to join in this cause.

We are listening!

Solve the equation and enter in the Captcha field.

To continue

Sign Up or Sign In


To continue

Sign Up or Sign In



The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Magazine and Lion Stockletter)