Coal India becoming India?s highest-value firm is a sign of how unreformed the sector is, nothing else
The government-owned Coal India Limited (CIL) made history on Wednesday when its market capitalisation reached R2,51,296 crore as compared to Reliance Industries Limited?s R2,47,129 crore. Not bad for a company, a PSU at that, which became a part of the 30-share BSE Sensex on August 8 this year and will gain an entry into the 50-scrip S&P CNX Nifty of the National Stock Exchange the next time it is reconstituted. Once you keep in mind that CIL is a government-mandated monopoly, the perspective changes quite a bit. And it?s not a terribly efficient monopolist at that, around 12,000MW of power capacity is shut down at the moment because CIL has no coal to supply. Indeed, since March 2009, CIL is not even signing fuel supply agreements (FSAs) with power producers?if it signs an FSA, this will mean it will have to make penalty payments for lack of supply. CIL blames its current situation on Jairam Ramesh?s no-go policies, and it may be right, but what?s important is that captive suppliers produce coal at costs much lower than CIL?s.
An interesting parallel to keep in mind is ONGC. At one time, when oil exploration was the sole prerogative of the public sector, ONGC was the cock of the walk. When the government opened up, you had big discoveries from Reliance in the Krishna Godavari Basin, Cairn in Rajasthan and GSPC in Krishna Godavari as well. It is true, ONGC has also made discoveries, but India?s oil and gas reserves, and discoveries, have gone up dramatically after the private firms came in. Do the same thing in coal, and chances are there will be a lot more RILs and Cairns out there.
