BackCIL gets presidential directive
CIL gets presidential directive
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New Delhi: In a rare move, the government has armed itself with a presidential directive that it could use to force Coal India Ltd (CIL) to sign fuel supply agreements (FSAs) with power producers, potentially binding the state-owned miner to supply as much as 80% of the fuel requirements of power plants or pay penalties if it doesn’t meet the commitment.
The directive, issued on Tuesday, comes at a time when CIL’s production growth is faltering and the country is struggling with its worst coal shortage.
The President of India can exercise her executive powers under Article 53 of the Constitution as long as the directive is not violative of Article 14 (Right to Equality). This position has been validated by two Supreme Court judgements. A presidential directive does not need prior legislative support, according to two other rulings by the Supreme Court.
“Under the Constitution, the executive power of the government vests in the President. Actually, all that it means is that the government acts in the name of the President. Since it is within the executive powers of the Union, the order is valid. If it is challenged in a court, it will depend on the facts of the case and the language used in the order," said Subhash Kashyap, a constitutional expert and a former secretary general of the Lok Sabha.
“I think executive orders are issued all the time. It is not uncommon. It may be issued in the name of the President. But it will normally be signed by a joint secretary or some other officer of the government. Strictly speaking, the President does not issue any directives. The power vests in the President. But it is exercised by the executive officers who are her subordinates," he said.
Several independent directors on the company’s board were against any commitment on the quantity of coal to be supplied in the FSAs, a CIL director had said earlier. CIL held its two-day board meeting last week to approve the various clauses of the FSAs before submitting the draft to the coal ministry.
The Prime Minister’s Office (PMO), in a statement on 15 February, had said a committee headed by the principal secretary to the Prime Minister met on 1 February and agreed that CIL will sign FSAs with power plants that have entered into long-term power purchase agreements with power distribution companies and have been commissioned or would be commissioned on or before 31 March 2015.
For power plants that have been commissioned up to 31 December 2011, FSAs will be signed before 31 March 2012, the PMO directive had said. The FSAs will be signed for the full quantity of coal mentioned in the letters of assurance for a period of 20 years, with the trigger level of 80% for the levy of disincentives and 90% for levy of incentives, it said.
CIL missed the 31 March deadline as it had not finalized the FSAs by then.
“The presidential directive has been issued. It lays down terms and conditions and asks the company to follow the directive of the PMO’s letter," said N.C. Joshi, information officer in the coal ministry, without providing further details.
The presidential directive said the company must meet 80% of the coal requirement of the power producers, Joshi said.
But the directive left it to the board of CIL to set the terms and conditions and the penalty clause to safeguard the interests of the company.
CIL acting chairman Zohra Chatterji, also an additional secretary in the coal ministry, did not answer repeated calls to her office. Coal secretary Alok Perti did not respond to phone calls or text messages seeking details of the presidential directive. The company’s press officers said they did not have the details of the presidential directive.
According to the PMO statement, in case there is any shortfall in fulfilling CIL’s commitment under FSAs from its own production, the miner will arrange for the supply of the fuel through imports or through arrangements with state/central public sector units that have been allotted coal blocks.
These arrangements will provide relief to power plants with an estimated capacity of more than 50,000 megawatts.
The FSAs will be a sticking point for CIL, which is struggling with limited growth in coal production owing to social, environmental and regulators issues that are preventing it from meeting the rapidly rising demand for coal from power plants and other industries.
On Tuesday, CIL released production figures showing a 1% increase on year to 435.84 million tonnes (mt) in 2011-12, falling short of its target of 440 mt.
A London-based fund, The Children’s Investment Fund Management (UK) Llp, or TCI, has initiated legal proceedings against CIL, charging it with selling coal at a price that’s up to 70% below the market price, hurting minority shareholders.
“The Republic of India’s recent conduct with respect to Coal India has seriously impaired the business activities and operations of Coal India and has contravened each of the treaties (of the country with the UK and Cyprus that deal with mutual investment promotion and protection)," Oscar Veldhuijzen, a partner at TCI, said in a notification issued to the finance secretary on 27 March.
Analysts said the FSAs may be detrimental to the interests of CIL if they do indeed bind it into meeting a guaranteed requirement of up to 80% of the coal needs of power plants.
“Coal India is the key player in coal, having prime responsibility. Naturally, the government and industry have expectations from it and, therefore, there is a directive from the PMO to address the shortage issue by signing FSAs," said Anjani Agrawal, partner and national leader (metals and mining) at Ernst and Young. “It might be a good idea to introduce the concept of penalties and bonuses in the short term with lower threshold and gradually enhance the risk and reward ratio."
Shares of CIL ended on BSE at Rs342.75 apiece, up 0.65% from Monday. The Sensex rose 0.68% to 17,597.42 points.
Agrawal said the FSAs could become a point of debate.
“This is a classic case by which governance standards will evolve. While minority shareholders will get more active, independent directors will get much more focused on governance issues," Agrawal said. “Similar issues are arising for oil marketing companies as well. This is a transition that every government company has to go through. There are learnings for all stakeholders—the government, board members and also for minority stakeholders."
ruchira.s@livemint.com
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