Corporate Apr 3, 2012
The little bush-fire lit under Coal India Ltd's (CIL's) board by The Children's Investment Fund (TCI) appears to have spread to the boards of the oil companies - who are actually in a worse financial state than coal.
Just as CIL's independent directors recently stalled the signing of one-sided fuel supply agreements (FSAs) with power producers, The Economic Times on Tuesday reported that independent directors on the oil marketing companies are asking their boards why petrol prices are not being raised to cut losses.
Petrol is supposedly a decontrolled fuel, but the government had asked the oil marketing companies - Indian Oil, Bharat Petroleum and Hindustan Petroleum - to stop any increases before the Uttar Pradesh elections and even now they are being prevented from raising prices.
The newspaper says that independent directors are now "regularly asking uncomfortable questions" about their (boards') decision to sell petrol below market prices.
However, all independent directors in government-owned companies will be watching what happens in Coal India keenly, as TCI has appointed Luthra & Luthra to take on the board for accepting diktats from the government on pricing and signing fuel supply contracts. Coal India, for its part, is reported to have appointed DLA Piper of the UK to defend it against TCI.
Meanwhile, news reports say that the government is set to issue a presidential directive to the Coal India board to comply with its wishes on the FSAs.
Since Coal Secretary Alok Perti has summarily dismissed TCI's legal notice to Coal India claiming damage to minority shareholders' rights (he claimed the issue "merits no consideration"), it is worth pointing out to Perti why he is dead wrong.
Here are 10 Pertinent (or is it ImPertinent?) questions for Perti and the government. The main reason why government thinks it can get away with murder is simple: national or public interest. Just as patriotism is the last resort of the scoundrel, Firstpost believes that public interest is being invoked without application of mind - or by conflating a ruling party's political interests with it.
So, our 10 impertinent questions relate to what is in public interest. We don't believe the government has sufficiently explained why Coal India should be mugged based on what it thinks is in public interest.
One, is it in public interest to sell coal - a fossil-based depleting resource - at low cost, and thus encouraging its wasteful use? The same logic applies to petro-fuels.
Two, how is it in the national interest to transfer wealth from a publicly-owned coal company (Coal India) to power producers - which is what pricing coal lower than market means?
Three, how is it in the national interest to supply power at artificially low tariffs to all categories of consumers - rich, poor and middle class? This, after all, is the logic used to keep coal prices low.
Four, how is the country's energy security - whether it is coal or oil - enhanced by keeping the fuels' prices low? Doesn't this make unattractive the discovery of new coal or oilfields, or extraction from underground mines (which are costlier to operate)? Keeping coal and oil cheap means solar and wind power will, by definition, permanently remain unviable.
Five, how is it possible for Coal India - or any coal producer - to invest in safety and address environmental concerns if coal is priced at low levels? (After all, safety is the logic used by sacked Railway Minister Dinesh Trivedi to raise rail fares, and which the PM and FM lauded). Why is the same PMO now reversing the logic for coal or oil?
Six, how is it possible for Coal India (or the oil marketing companies) to subsidise poor consumers if they cannot raise more money from the better off consumers by hiking prices?
Seven, if the government wants to subsidise coal or power, why can it not do so from its own budget? After all, state governments, if they want to provide power at subsidised rates to farmers, have to provide for the subsidy in their budgets. Why is Coal India an exception? Is this logic not applicable to the Central government?
Eight, if the government's concern is about coal and oil companies making windfall profits from free pricing, why can it not legislate a windfall profits tax - as Australia is doing?
Nine, does the government realise that by forcing Coal India to sign FSAs, it is essentially subsidising foreign suppliers of coal in case of CIL's inability to meet supply commitments? How is it in the national interest to subsidise foreign suppliers of coal - whether it is Indonesia or Australia?
Ten, shouldn't the goal of all government policies be transparency and auction - as the Supreme Court recently said in its 2G verdict? Why is Coal India not selling it coal through auction? Why did the government itself shy away from auctioning coal blocks to private producers, as the Comptroller and Auditor General is saying? If the coal ministry is now scrambling to auction coal blocks, why is it clamping down on Coal India's own e-auctioning of coal? Double-standards?
Mr Perti, it is time for you to ask yourself whether issuing a presidential directive to CIL is the right way to serve national interests.
More From R Jagannathan.