Coal India Ltd (CIL), the state-owned company which accounts for almost 85% of coal produced in India, will not make a previously planned initial public offering (IPO). It will consider one only after it is granted the so-called “navratna” status by the government which effectively means greater autonomy.
“First let us get the navratna status and only then will we think about an IPO,” said Partha S. Bhattacharyya, chairman, CIL.
“The navratna status would imply much greater operational autonomy and flexibility. Hence if CIL is awarded the navratna status before its IPO then its valuation will also be higher,” said Dipesh Dipu, a manager with audit and consulting firm PricewaterhouseCoopers. CIL is currently classified as a mini-ratna, which means it does get some autonomy but not as much as a navratna. A navratna status would allow it to take decisions on large projects without referring them to the government.
Bhattacharyya said that while the coal sector does require a regulator, as outlined by the expert committee report on the Integrated Energy Policy, that authority should restrict itself to issues such as “safety, sound labour practices and environment,” and not regulate prices.
Not everyone buys that argument because the agency setting prices for coal happens to be CIL. India does not allow private firms to mine coal for commercial purposes (they can do so for captive consumption) and CIL has a monopoly in this business.
“The whole point of having a regulator is to regulate prices,” said Dipu. “Given the market conditions, which does not allow private players, it is necessary to have a regulator. Different mines have different costs of production depending on the conditions and technology employed and there is no reason to believe the CIL’s prices are the lowest possible for the consumer,” Dipu added.