Modi considers CIL break-up

As India’s new prime minister, Narendra Modi, starts his first day in the office after his swearing-in ceremony, one of his most pressing tasks will be to sort out the country’s inadequate power industry and the coal industry that consistently falls short of supplying it.

News that Coal India (CIL), the country’s leviathan state-owned coal mining monopoly, has again missed its annual production target for the 2013 – 14 financial year highlights the need for reform of the sector. Economic growth has dropped to its slowest rate in a decade as businesses withhold investments in response to the country’s erratic power supply. Meanwhile, a steady stream of corruption stories around the allocation of coal block continues to make the news in the country.¹

Meanwhile, NTPC – the country’s largest power producer – is said to be considering construction of a new 2.4 GW power plant based on imported coal in Pudimadaka in Andhra Pradesh partly as a hedge against domestic coal shortages. The power company also aims to mine 20% of its coal needs itself by 2017 in a bid to improve its coal supply.

Against this backdrop, Modi is said to be considering dramatic reform of the coal industry, including a possible break-up of CIL: “The story is about Coal India, whose productivity as we all know has been poor,” a member of Modi’s economic team told Reuters last week. “What we have in mind is bringing changes inside-out in the company.”

“The only meaningful solution, though much harder to implement, is to […] break up Coal India and divide ownership of its subsidiaries among the states where they operate,” agreed analysts at Credit Suisse.

Meanwhile, a former chairman of CIL has argued for the new government to go further and privatise the coal industry. In an interview with CNBC-TV18, Partha Bhattacharya argued that: “opening up of the sector is the most crucial step that the new government can take to bring in multiple players, players with core competence in coal mining.”

CIL accounts for over 80% of India’s coal production. It mined 462 million t of coal in from March 2013 to March 2014, short of its target of 482 million t. The company has seven regional subsidiaries.

1. For more see: WENG, N., “A murky business (Part 1)”.

Written by Jonathan Rowland

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