Smaller rival shows way for monolith Coal India

Jun 17 2014, 12:24 IST
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SummaryFor a coal producer trying to navigate the complex federal structure, size matters. And the smaller the better.

For a coal producer trying to navigate the complex federal structure, size matters. And the smaller the better.

That harsh lesson was learnt by S Narsing Rao, the outgoing chairman and managing director of Coal India. While Rao had been at the helm for past two years, Coal India has missed its annual output targets.

But in the six years before that, Rao led Singareni Collieries and the company beat output targets every year. Even though it is India's second-biggest coal producer, it is small compared with Coal India. In the fiscal year ended March 31, it produced a tenth of Coal India's 462 million tonnes. Some experts say India needs more small and nimbler companies like Singareni, rather than monoliths like Coal India to narrow its crippling supply shortfall, predicted to more than double to 350 million tonnes by 2016-17.

The inability of Coal India — accounting for 80% of the country's coal output — to raise production fast enough has made India the world's third-largest coal importer despite sitting on the fifth-largest reserves. That is forcing new Prime Minister Narendra Modi to explore drastic remedies like a break-up of the company, sources say. The key reason Singareni can meet its targets lies in the ownership of the two companies, said Rao.

While Coal India is majority owned by the central government, Singareni is controlled by Telangana. Since the Centre can do little without the consent of the states, it is easier for the likes of Singareni to acquire land for mining, access infrastructure such as railways and get environment approvals.

Land acquisition and access to railways are the two most important factors for boosting coal production.

“Coal India is somehow not proving to be very successful in influencing state governments and district administrations to positively respond to our requests. That is the challenge," Rao told Reuters. "Singareni being a state government company, it is much easier to do that."

State resistance has, for instance, hampered Coal India's plans to build railway lines connecting remote mines. Rao has said previously that better transport connections could raise the company's output by 300 million tonnes per year. Rao has quit Coal India to join the government of Telangana, a new state formed this month through the division of Andhra Pradesh.

Coal India's 3,70,000 highly unionised workforce has resisted attempts to introduce new technologies, fearing job losses.

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