India will consider splitting up Coal India Ltd. (COAL), the world’s biggest producer of the fuel, to boost output and make the sector more competitive, according to a statement on the coal ministry’s website posted today.
The government is seeking to appoint a consulting firm to study separating each of the company’s seven coal units into independent entities, acting on a suggestion from the Indian government’s Planning Commission, which is led by Prime Minister Manmohan Singh.
Kolkata-based Coal India, producer of more than 80 percent of the country’s coal, is struggling to meet rising demand from power utilities, which has led to an increase in imports and power plants lying idle for want of fuel.
“We have an open mind and by appointing a consultant we are getting an expert to decide on the merits of the idea,” Coal Secretary S.K. Srivastava said yesterday in an interview.
The company was established in 1975 as a state-owned entity. In 2010, it sold 10 percent of its shares in the nation’s largest initial public offering.
“In the case of coal, import dependence is projected to increase as the growth of thermal generation will require coal supplies, which cannot be fully met from domestic mines,” the Planning Commission said on its website.
Coal India shares were little changed at 360.25 rupees at the close in Mumbai. The stock has gained 13 percent in the past year, compared with a 25 percent gain in the benchmark Sensex.
“It will be a great thing to happen for both Coal India and its clients, as higher autonomy to subsidiaries will lead to higher output and smarter investment decisions, which will ultimately benefit its clients,” said Deven Choksey, managing director at K.R. Choksey Shares & Securities Pvt. in Mumbai.
An ideal format could be Coal India remaining as the holding company, through which its independent entities could collectively bargain with suppliers and take advantage of its size even as they compete for clients, Choksey said.
Chairman S. Narsing Rao declined to comment, saying he would wait for the consultant’s report before voicing his views.
The consultant should be a company with at least 10 years experience in advising on energy, mining and government policy, the coal ministry said.
Shortages of coal and natural gas have forced companies, including Reliance Power Ltd. (RPWR) and GVK Power & Infrastructure Ltd., to shelve more than $35 billion worth of utility projects.
Coal India has eight units, including seven that mine coal in different regions. Each has a board, headed by a chairman and managing director. The boards can decide on operational issues, but have no representation on Coal India’s board, where broader policy decisions are taken. Two of these units, South-eastern Coalfields Ltd. and Mahanadi Coalfields Ltd., produce more than half of the company’s total coal production.
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