Mounds of coal are seen at the Mundra Port and Special Economic Zone in 2011. Shares of Coal India fell Wednesday after the government directed the mining giant to sign guaranteed supply deals with domestic power producers, overriding concerns about the impact on profits. © AFP/File Sam Panthaky
NEW DELHI – Shares of Coal India fell Wednesday after the government directed the mining giant to sign guaranteed supply deals with domestic power producers, overriding concerns about the impact on profits.
The rare directive was issued late Tuesday after state-run Coal India missed a deadline set in February by Prime Minister Manmohan Singh to sign the agreements by March 31 with producers facing a supply crunch.
Coal India is already struggling to meet output targets and the company’s board members were alarmed at the prospect of having to pay penalties if it was unable to fulfil the commitments it was ordered to make to domestic power firms.
The company’s shares slipped two percent in intra-day trade Wednesday after the directive was announced. But shares of power generation companies jumped.
In 2010, the government raised $3.4-billion by selling a 10 percent stake in the company known as India’s “King Coal” in the country’s biggest ever initial public offering.
Before the decree, powerful industrialists such as Anil Ambani had been lobbying the government to guarantee supplies, saying lack of coal was stalling plans to build new plants to address India’s chronic energy shortage.
Coal India is responsible for 80 percent of the nation’s coal output.
India has an installed power generation capacity that is about a fifth of neighbouring China’s and a peak-hour power shortage of around 12 percent as rising demand from industry and domestic users outstrips supply.
But domestic coal prices are discounted by as much as 40-70 percent from the international price, and Coal India’s minority shareholders, such as London-based hedge fund TCI, argued the government move breached their rights.
Coal India “should be run for shareholders without being abused by the government for the benefit of a few politically connected industrial companies,” the fund’s manager Chris Hohn told the Economic Times newspaper on Tuesday.
TCI last weekend said it was launching legal action against Coal India, saying the discounts to domestic power companies contravened its obligation to maximise value for shareholders.
But India’s Coal Minister on Wednesday dismissed TCI’s complaints and those of other minority shareholders, saying the buyers of Coal India shares should have had their eyes open.
They “knew it well it is a government company and that our government is committed to follow a socialist path.” Coal Minister Sriprakash Jaiswal told the Press Trust of India.
“If someone had bought the Coal India shares thinking the company will run the way they want or the way the market wants, it is not possible.”
Coal India shares climbed back later in the day to close down nearly half a percent at 341.60 as investors focused on the company’s still strong balance sheet.
Coal India’s three-month to December net profit rose 54 percent to 40.38 billion rupees ($821 million dollars) from a year earlier.
But shares of India’s leading private sector power companies such as Tata Power, Adani Power and Reliance Power, closed up strongly across the board as the companies welcomed the government decree.
