The Indian government is considering breaking up state-owned Coal India Ltd, the world’s largest coal mining company, into five separate listed firms in order to boost competition and raise funds, according to a report in Bloomberg.
The report, citing people with direct knowledge of the matter, said that the Department of Investment and Public Asset Management, a wing of the finance ministry which deals with disinvestment, has proposed listing four of Coal India’s biggest production units as well as its exploration arm. Coal India and the coal ministry are currently studying the proposal and it was unclear how long it may take, the report added.
The four production units are Mahanadi Coalfields, South Eastern Coalfields, Northern Coalfields and Central Coalfields. They together account for more than three-fourths of Coal India’s total output, while constituting less than half of its workforce. The fifth unit proposed to be listed would be Central Mine Planning and Design Institute, a fully-owned subsidiary of Coal India Ltd, engaged in the field of environmental engineering, and consultancy and engineering services.
Interestingly, the government’s policy think-tank Niti Aayog had earlier in 2017 proposed that Coal India be broken up so that its units can compete against each other. The idea was dismissed at the time by then coal minister Piyush Goyal, who said the plan doesn’t reflect government policy.
Coal India has been struggling to meet its production targets for the last few years. The company produced a record 607 million tonnes in 2017-18, but it was still short of the target by 22%. Meanwhile, India’s coal imports have surged to a record over the same period. According to the Bloomberg report, spinning off Coal India subsidiaries would lead to greater competition in the domestic coal market and improve corporate governance.
Coal India shares dropped around 1.6% to Rs 229 apiece on Wednesday, i.e. 17 July, after the news. The stock, which has lost almost 12% in the last one year and 3.6% so far in 2019, is heading for its fifth straight year of declines.
Finance minister Nirmala Sitharaman, in the Union Budget 2019, had set a record target of raising Rs 1.05 trillion in 2019-20 through divestment of stakes in public sector companies. She had also proposed a hike in minimum public shareholding in a listed company to 35% from the current 25%. If implemented, the government, which currently holds 70.96% stake in Coal India, would anyways have to reduce its stake by another 5.96% in the company.
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