The Prime Ministers Office has issued a diktat to the Board of Coal India Ltd , a public limited company with domestic and foreign shareholders to sign long term feedstock contracts with power generators to provide coal regardless of whether it is able to mine it or not. If they cannot mine domestically they will be forced to buy overseas and if necessary to bear the losses. ( Upfront declaration - I own a few hundred shares of Coal India Limited). The power generators are among the top names in the industry. This is the height of absurdity.
Most of these companies bid very aggressively for setting up large power generating plants, based on power supply contracts. Some of them were also allocated captive coal mines. In addition some of them bought coal mines in Australia and Indonesia. Now they find that they cannot produce domestically for political or environmental reasons. Also countries such as Indonesia have insisted that the coal prices be priced at international prices and not be transfer priced. Accordingly these power companies find them selves in a financial tangle since they priced their supply contracts at a low price to get the green light. So what do they do now ?They go running to Daddy.
Daddy then tells Coal India Limited, the largest coal company in the world , whose staff keeps asking for more wages, and which is facing the same problem as the private sector in terms of increasing production to sign this contract..The independent directors of Coal India Limited refused to support it. Now with the orders coming directly from the President of India,Coal India will effectively be subsidizing the the private sector power generators. Damn the shareholders.
A more effective way would be for the government to give tax breaks or subsidize the power generators for the price difference between domestic and international prices and allow them to import the directly.. As Coal India's largest shareholder, it will also be foregoing dividends which will not be paid because of potential losses. Subsidize the companies directly and let Coal India operate like a normal commercial organization, After all with all the subsidies which the government hands out every year, whats a few more thousand crores?
Most of these companies bid very aggressively for setting up large power generating plants, based on power supply contracts. Some of them were also allocated captive coal mines. In addition some of them bought coal mines in Australia and Indonesia. Now they find that they cannot produce domestically for political or environmental reasons. Also countries such as Indonesia have insisted that the coal prices be priced at international prices and not be transfer priced. Accordingly these power companies find them selves in a financial tangle since they priced their supply contracts at a low price to get the green light. So what do they do now ?They go running to Daddy.
Daddy then tells Coal India Limited, the largest coal company in the world , whose staff keeps asking for more wages, and which is facing the same problem as the private sector in terms of increasing production to sign this contract..The independent directors of Coal India Limited refused to support it. Now with the orders coming directly from the President of India,Coal India will effectively be subsidizing the the private sector power generators. Damn the shareholders.
A more effective way would be for the government to give tax breaks or subsidize the power generators for the price difference between domestic and international prices and allow them to import the directly.. As Coal India's largest shareholder, it will also be foregoing dividends which will not be paid because of potential losses. Subsidize the companies directly and let Coal India operate like a normal commercial organization, After all with all the subsidies which the government hands out every year, whats a few more thousand crores?
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