Coal India Ltd.’s employees plan to go on an indefinite strike should the government proceed with a plan to raise 200 billion rupees ($3.7 billion) selling shares in the world’s biggest producer of the fuel.
The workers will “vehemently oppose” any such decision, said S.Q. Zama, secretary general at the ruling Congress Party-backed Indian National Mineworkers Federation, citing a memo to Coal Minister Sriprakash Jaiswal. A day’s strike in Coal India may lead to a loss of about 1.2 million metric tons, worth about 1.7 billion rupees, based on the company’s average selling price of 1,438 rupees a ton in the quarter ended Dec. 31.
The stoppage will squeeze supplies to Indian power plants, cement and steel factories. Coal India, which missed its output target for the year ended March 31, is battling law and order problems, labor unrest and delays in acquiring land and mining approvals to boost production and avoid resorting to imports to meet contracts. A peak shortfall of 9 percent in electricity supplies leads to outages that shave about 1.2 percentage points off the $1.8 trillion economy, according to the government.
“The government has to win the support,” of the labor unions, said Prasad Baji, an analyst at Edelweiss Financial Services Ltd. in Mumbai, who recommends investors buy the stock. “To make the share sale attractive, the government may allow the company to raise prices and counter the increase in costs.”
The shares fell 0.5 percent to 309.25 rupees at the close in Mumbai. The stock has lost 13 percent this year, compared with a 5 percent decline in the benchmark S&P BSE Sensex.
Coal India may raise prices this fiscal year, Macquarie Capital Securities (India) Pvt. analysts Rakesh Arora and Sumangal Nevatia wrote in a April 1 report. The company last raised regular prices in February 2011, while a reclassification of its products based on their heat value starting Jan. 1, 2012, led to a 3 percent increase in selling prices. The Kolkata-based company agreed to a wage increase starting in July 2011.
The government, which owns 90 percent in the miner, is considering selling a 5 percent stake to the public and a similar holding to Coal India, according to a finance ministry draft proposal obtained by Bloomberg News. A directive by the market regulator to state-run companies to reduce the holding of the government to 75 percent by August this year may be used as a ground to convince the workers.
“Any further sale in Coal India will be a breach of promise,” Zama said in a phone interview. “The government is not a beggar. It can find other ways to bridge the deficit.”
NTPC, Oil India
Prime Minister Manmohan Singh’s administration sold stakes in companies including NTPC Ltd., NMDC Ltd. and Oil India Ltd. for about 240 billion rupees in the year ended March 31 to shrink the widest budget deficit among major emerging economies, pay subsidies and invest in public works. The divestment list to raise 400 billion rupees this fiscal year also includes National Aluminium Co., Rashtriya Ispat Nigam Ltd., Indian Oil Corp., Power Grid Corp. of India, and Bharat Heavy Electricals Ltd.
“Workers fear a stake sale will lead to privatization and exploitation,” R. Mohan Das, director for personnel at Coal India, said in an interview.
Five central worker unions, led by the Indian National Trade Union Congress, opposed a 10 percent share sale in Coal India in 2010, saying it would pave the path for privatization of the company and jeopardize employee interests. The 152 billion rupee sale, India’s biggest until then, went ahead on the then finance minister Pranab Mukherjee’s assurance that no further stake would be sold.
‘We Are One’
“All coal sector workers will go on a continuous strike from the day this decision is announced by the government,” said Jibon Roy, secretary at the Centre of Indian Trade Unions, a unit of the opposing Communist Party of India (Marxist). “On this matter, we are one.”
Finance Minister Palaniappan Chidambaram has asked cash-rich state companies to use their surplus cash for projects, or give it back to the government as dividend, or buy back shares. Coal India has a cash reserve of $12 billion.
“We anticipate some labor issues in going ahead with further disinvestment in Coal India,” Coal Secretary S.K. Srivastava said in a phone interview. “We will do our best to convince them.”
Coal India workers went on a one-day strike in Oct. 10, 2011, asking for higher bonus payments for the year, a demand the company met. They threatened to go on strike again three months later and won an increase in wages.
“Coal India has to improve its output and sales volumes to boost investor sentiments,” said Rahul Jain, an analyst with CIMB Securities India Pvt. in Mumbai, who has an underperform rating for the stock. “In absence of these, the company may see a decline in earnings this fiscal year because of the increase in costs.”