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Wednesday, 04 April 2012 00:33
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Presidential directive on CIL says market irrelevant
The government’s stance on the dispute with The Children’s Investment (TCI) Fund gets curiouser and curiouser. The presidential directive telling Coal India Limited (CIL) it has to sign fuel supply agreements (FSAs) with power plants even if its board disagrees with this is only going to make TCI’s case stronger at the arbitration court. Given how CIL’s FY12 production has fallen short of even the lowered target, clearly CIL’s board was right in arguing CIL doesn’t have the capacity to meet the FSAs, and the penalty clauses for non-supply will be huge. This is, in fact, the crux of the TCI argument, that the government is forcing CIL to take commercially unsound decisions—forcing CIL to disregard its board proves just this.
What makes the government stand all the more strange is the stance taken by coal minister Sriprakash Jaiswal. At the Express Group’s Idea Exchange, he said TCI should have known that India is a socialist country and has a large number of poor people, so where was the question of a PSU like CIL being run on purely commercial lines? Ditto, we presume, for PSUs like ONGC/IOC that lose around a lakh crore rupees each year due to oil subsidies. There’s an obvious fallacy in Jaiswal’s argument since kerosene subsidies paid for by ONGC don’t get to the poor and coal given cheap by CIL doesn’t necessarily lead to lower power costs, but leave that aside for now.
If CIL is listed on stock exchanges, and the same applies to ONGC and the others, surely this signals to investors that the company is going to be run on commercial lines? It is true CIL’s draft red herring prospectus listed the possibility of government intervention in pricing decisions as a risk factor, but most investors seem to have missed this. While this could lose TCI the CIL case, is it the government’s stand that all investors in PSUs must know it has the sovereign right to make the company do what it wants? In which case, why not delist? Rex is lex, the government is the law.

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