Monday, September 17, 2012

Supply is the main challenge: CIL chief

September 16, 2012

Fifty four-year-old S. Narsing Rao gave up his IAS career to pick up the reins of Coal India Ltd. (CIL), the world's single-largest coal mining company. As the immediate past chair and managing director of the Andhra Pradesh-based joint venture coal mining company Singareni Collieries Company Ltd., he succeeded in jacking up the production from 36 million tonnes in 2006-07 to 53 million tonnes in 2011-12. He has lived and functioned out of Rome, Yangon, Kuala Lumpur and Bangkok. His areas of activities and interests include rural development and poverty alleviation, environment, ecology and administrative reforms.

His skills in all these areas and more are going to be put to test over his tenure as the Chairman and Managing Director of CIL as he assumes charge at a time when the Navratna PSU is facing challenges on many fronts. Into his fifth month on the job, (he assumed charge on April 23) he took time off to share with The Hindu some of his strategies for steering CIL in the years to come. Excerpts:

What would you say are the biggest challenges before Coal India Ltd now?

In the given circumstances, it is production, production and production. The single-most important issue before me is to produce and supply. While as the CEO of the company, the effort always remains to address factors such as cost of production, which is anyway low for me due to CIL's relatively easy mining conditions, but for me the main challenge is to supply. Rest are all housekeeping issues. From next year, I am planning to do away with the present system of production targets. There should be only one target, and that is the offtake target.

This is something that CIL is considering and very likely that this will be introduced.


I feel that the focus should shift from production to offtake. This will address three-four areas. I feel that there is need to change this present overwhelming obsession with production only.

In many cases, coal is just produced and dumped... raising issues of loss of quality of the coal, fire-safety, theft, vigilance issues and what not ... all this can be put to rest. What you have despatched from your area should be your achievement, not just production. Therefore, instead of two numbers, there would be only one number. Merely producing will not do. Offtake is important. At the end of the day, this is what matters to the consumer. Despatch is what gets monetised.

What is your XII Plan investment?

The proposed figure is Rs.25,400 crore. However, my take is a little different on these matters. For me, there are only five numbers ... these are the respective figures of production for the five years. Capital investment by itself is not such a major thing, especially when 50 per cent of CIL's production is outsourced.

Therefore, capital investment is just one indicator to judge whether your plans are okay in the medium term. It does not necessarily translate into higher production. However, I may add that CIL will invest as much as possible to achieve the 615 million tonne output target set for the terminal year of this Plan. We are also in efforts to invest another Rs.15,000 crore but that is conditional on three rail projects which are needed for evacuation of the coal that we would produce.

Do you have any plans to fast track production, especially in view of the delays over regulatory clearances?

As regards the delays that you mentioned .. they are only delays — and will have to be treated as part of life for mining companies, and, accordingly, planned for. I always advise my colleagues in the subsidiary companies ... why are you losing your sleep over these issues … just plan accordingly. It is the same for land acquisition, and rehabilitation and resettlement (R&R).

However, above all this, we have taken certain steps to fast track production. We have identified 13 opencast greenfield mines with a total annual capacity of 65 million tonnes, which will be given to mine development operators. They would adopt a private sector approach. They would raise the coal and deliver while following the norms and regulations on R&R, environment management, labour welfare and safety.

What are your views on coalgate and cancellation of coal blocks ... what does it mean for CIL?

I do not want to comment on these issues, which are being currently debated. However, my personal view is that the major constraints being faced by CIL and its subsidiaries, particularly those beyond its control, should be addressed so that coal production can be ramped up to meet the country's requirement.

You see country's shortage is only of the order of 120 million tonnes. If necessary infrastructure such as the three railway lines is in place, then CIL can produce an incremental 300 million tonnes per annum. Then, the national requirement can be met. The country's coal problem hinges on this 300 million tonnes. If they tackle the infrastructure aspect, CIL would take care of everything else — land acquisition and clearances.

Do you think CIL will gain in the entire process, if allocations are cancelled?

Unlikely in the short-term. I do not know what process the government is going to follow. However, even if they allocate some of the cancelled coal blocks, they may not be readily available for coal production in view of the lack of adequate exploration, infrastructure and clearances. However, it may be helpful in the medium-to-long-term.

Do you foresee any competition with the private sector?

Until the time that they do not get to produce for merchant sales... there is no competition.

Please give us an update on the FSA (fuel supply agreement) issue

It is in the stage of approval by the board.

Really? After dragging on for so long …

You have to appreciate the fact that the board has to consider a revised model within a four-month time span. Practically, the entire draft has been recast. Now, a concurrence has been achieved on most of the points barring price pool, and we expect that issue to be resolved at the next board meet.

Has CIL had an issue with its investors on FSA and the price pool?

With pool they had reservation as they felt that CIL's bottom line would be impacted. We have assured them that would not happen.

How is e-auction going?

While in the last fiscal, we sold about 11 per cent of the output through e-auctions, amounting to 50 million tonnes (and generated Rs.5,000 crore of revenue), we may have to reduce the figure this year to release additional amount of coal for distribution under FSAs. As per government direction, we need to bring down e-auction offerings gradually to around 7-8 per cent of production.

CIL is keen to come out of the ICVL joint venture... so what are its plans on overseas acquisition?

I do not see any significant progress in overseas acquisition in the short-term except in the medium- to-long-term, as the entire thing is a prolonged and complex process. Moreover, though it serves our stated purpose of ramping up production, the cost of that coal will be as per international prices.
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