06-Oct-2013
Coal India Ltd, the world’s largest coal miner, has not replaced the seven independent directors who finished their tenures in August after resisting some policy decisions that had been seen as harming the company’s interests.
The delay in replacing them points to the clogged decision-making at the state-owned company, in which the government plans to sell a 5% stake through the so-called offer for sale (OFS) route to raise as much as Rs.10,000 crore to narrow the fiscal deficit to the lowest in five years.
The seven directors were credited with highlighting the active role independent board members can play in influencing the functioning of firms rather than being passive supporters of management decisions.
“This is not a good precedent to not have any independent directors, especially at a time when the company is planning an offer for sale,” said Shriram Subramanian, founder and managing director of InGovern, a corporate governance research and advisory company. “This does not send the right signal to investors.”
In addition to the OFS, crucial decisions that await the new independent directors are Coal India’s plan to import coal to meet the domestic shortfall that goes beyond 100 million tonnes, and the acquisition of overseas companies to expand its resources base.
Of the seven directors, Samir Barua, a professor at Indian Institute of Management—Ahmedabad, was an academic. The rest were officers of the Indian Administrative Service with varying backgrounds.
The other independent directors were R.N. Trivedi, Sachi Chaudhari, Anis Ansari, Kamal Gupta, Sheela Bhide and A.K. Rath.
Subramanian said none of the seven directors had been reappointed possibly because their independent stance on key policy matters had discomfited the government.
The directors opposed the terms and conditions of the fuel-supply agreement (FSA) that Coal India signs with power plants guaranteeing supply of the fuel and softened the terms and the penalty levels in the final policy.
They also insisted that coal imported by Coal India to deliver to customers must be priced at the market value without being subsidized in any way by the company.
The directors also questioned the supply of coal to cement and metal firms at low prices, saying such customers sold their products at market prices and it wasn’t fair that Coal India should subsidize their fuel cost.
“Whatever we said, we said judiciously,” one of the former independent directors said on the condition of anonymity.
The directors wanted to bar power firms that sold all or part of their power at market rates from signing the FSAs and getting low priced and guaranteed coal supply.
An official at Coal India, not wanting to be named, said the process of the new appointments was on.
Landmark tenure
During the three-year tenure of the independent directors, the government had to issue two presidential directives ordering the companies to sign FSAs amid rising pressure from the power companies.
“It was perhaps for the first time presidential directives had to be issued by the government,” Subramanian said. “It was basically a matter of the dominant shareholder vis-a-vis the independent directors.”
The government issued the first presidential directive in April last year, ordering Coal India to supply as much as 80% of the coal requirements of power firms at a time when the company’s production was faltering.
In July this year, a second presidential directive was issued, asking Coal India to sign FSAs with power plants for a capacity of 78,000 megawatts (MW), according to media reports.
“The presidential directive helped the independent directors as they absolved them of any blame of taking decisions that were financially risky for the company,” one director said.
The Children’s Investment Fund Management (UK) Llp (TCI), a UK-based investor that has a lawsuit against Coal India, may have contributed in forcing the independent directors to take a bold stand against unfavourable policies, analysts said.
The lawsuit being heard in the Calcutta and Delhi high courts has named the directors in addition to the management of the company and the government, saying the firm’s policy of selling coal at low prices in India was bad for shareholders.
“There were no differences, no disputes. We made the firm take a call on the subsidy element,” said a second independent director who did not want to be named. “What we said was based on merit.”
Source:- livemint.com
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