Coal India’s low prices: some method to the madness?

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The Children’s Investment Fund wants to raise electricity bills for the 67 per cent of Indians with access to electricity.

Not that TCI doesn’t have a good reason. Coal India, the 90 per cent state-owned giant, sells coal at prices 40 to 70 per cent lower than international ones, and TCI is the company’s biggest minority shareholder.

On Tuesday, the activist UK-based hedge fund which owns 2 per cent of Coal India sent it a letter threatening legal action, alleging a breach of fiduciary duty by the board for following “the unreasonable and unlawful directions of the Government” on pricing.

Investors throughout India rejoiced. Finally, someone was standing up against the utter disregard that Indian companies often show for their minority shareholders.

If Coal India raised prices it would not only be good news for shareholders – principally, the government. It would also allow it to modernise, ride out rising costs and advance further into underground mining, helping to reduce India’s energy deficit.

For those who believe in accountability, and the rights of the little guy, this was a moment to rejoice. But there are, as it were, other, littler guys. And few of them have reason to rejoice.

India is a price sensitive country. From onions to petrol to train tickets, a rupee (2 cents) here or there, matters. For India’s poor, the price of electricity is a matter of immediacy, not one on which they can take the long view.

CIL has kept prices low since its creation, analysts say, due to a combination of historical precedent, political imperative and antiquated self-image. It has provided an outlet for low-quality Indian coal. It has been good for the poor, who vote in great numbers and would be most affected by price rises.

And it has followed the model for many Indian public-sector companies, which often see themselves less as profit-seeking enterprises than as social apparatuses. Coal India, like other majority state-owned companies, has been run as an extension the ministry that oversees it.

In the past, its prices were roughly in line with international ones. But since crude took off from about 2003 the gap has widened.

Private investors didn’t care while the company was 100 per cent state owned. But since the sale of a ten per cent stake in 2010 for $3.5bn, that has changed, too. Many hope TCI’s letter will be a clarion call for minority shareholders to demand better governance.


It may be a coincidence but on Wednesday the Press Trust of India quoted a “top coal ministry official” – perhaps an indication of who calls the shots – saying that CIL may increase prices in the quarter beginning in April to offset a 25 per cent hike in wages, worth about $1.3bn – which the ministry had previously said the cash-rich company would simply absorb.

For TCI and other minorities, the wind could be changing. The estimated 800m Indians living on less than $2 per day may not find much to cheer about.