When Coal Turned Gold

Title: When Coal Turned Gold – The Making of a Maharatna Company

Author: Partha Sarathi Bhattacharyya

Publisher: Penguin Random House, 2018 (First)

ISBN: 9780670090761

Pages: 181

Public sector is where everybody, including the CEO, blames the management for their own mistakes. Unfortunately for India, the irrational fix up with socialism in the early stages and partisan politics in the two decades from 1960 had forced the government to go for public sector enterprises in every sphere of the command economy. Wherever the private sector had a sizeable presence like banking, insurance, coal mining and aviation, the leading private enterprises were either forcibly taken over by the government or the sector made a state monopoly. The oil shock of the early 1970s stung the state into making a quick decision to adopt coal, which is abundantly available in India, as the primary energy source of the nation. The coal sector was nationalized in the 1970s and a behemoth called Coal India Limited (CIL) was established in 1975. This company now owns 80 per cent of the country’s coal production and over 40 per cent of its commercial energy – more than the aggregate contribution of all oil and gas companies put together. Despite mining the same in huge quantities, CIL was able to see black in its balance sheet only in the 2000s as a result of the economic reforms ushered in the country. From the sorry plight of being dependent on budgetary support for its capital expenditure requirements, a slew of measures have made the company self-reliant and profitable. It is now a Maharatna company in India and as a prerequisite to attaining that status, had to list its shares in the bourses. The IPO was immensely successful with the issue oversubscribed more than fifteen times. It became the fourth largest company in market capitalization on the very first day of listing. Partha Sarathi Bhattacharyya was the CEO of CIL for five years and had a career spanning 34 years in its executive cadre. This book is a brief history of the company making a turnaround and the heroic effort that had gone into the successful listing. He has also introduced a few management concepts that can be beneficially applied in any public sector company in India.

Bhattacharyya is basically a finance professional. He left his job in the United Bank of India and joined Coal India as a management trainee in 1977. By hard work and application of innovative ideas, he rose to the top level rather quickly and became a member of the board after just 24 years of service. Believe me; this is quite an achievement in India's public sector where the only thing demanded from a person to be paid more is to get older. He designed the financial models that were examined and approved by the World Bank for granting a bridge loan that changed the fate of CIL. He was made the finance director of Bharat Coking Coal Limited, the largest subsidiary of CIL, and elevated as the chairman of CIL in 2006 at which post he served for five years. Even after superannuation, he closely watches the coal sector and provides valuable insights on the way forward.

The book provides an in-depth survey of the pathetic state of affairs prevailing in state-owned companies in the Indira Gandhi era. Financial viability was not a factor in selecting projects. In the case of coal, this extended to ridiculous extremes. A project closely situated to an upcoming power plant was more likely to be developed even if it projected losses to the company. The motto was ‘more coal, whatever is the cost’. Though the company enjoyed a virtual monopoly of the product, the pricing formula adopted in the late-1980s was based on norms disadvantageous to CIL. It reeled under losses since the capacity utilization hovered well under the targeted 85 per cent. However, the firm didn't feel any financial strain. The cash flow was assured with liberal doses of budgetary support and generous loans from banks which are also owned by the state. The unwritten rule for government loans was payable when able. In short, there was no incentive for good performance and the company plunged deeper into the red. As time went on, even very essential payments were defaulted. As Margaret Thatcher once remarked on socialism, the problem was that you eventually run out of other people's money. The turnaround came in early 1990s when the new Prime Minister Narasimha Rao scrapped the laughably restrictive practices put in place by Nehru and his daughter. CIL focused its investment on high return projects with gradual reduction in debt, fast track attrition of the workforce through VRS and improvement of operational parameters converging to normative levels.

Bhattacharyya's heroic effort in winning the Maharatna status for CIL is praiseworthy. The status is a coveted one for government-owned companies. Only eight undertakings – ONGC, GAIL, IOC, BHEL, NTPC, BHEL, SAIL and CIL – are the holders as on end-2018. Entry into this elite club requires an average annual turnover of more than 20,000 Cr, net worth more than 10,000 Cr and net profit more than 2,500 Cr for the last three years; significant global presence and listing in stock exchanges. CIL was not a listed company till 2010. The government wanted to sell 10 per cent of its stake through an IPO and then list it. Dipstick surveys on company valuation returned a figure of only 50,000 Cr, while the government expected to rope in at least double that amount so as to get Rs. 10,000 Cr from the IPO. The investors’ perception was boosted with road shows in major cities of India and the world. The author had a good rapport with the government and publishing houses which ensured favourable attention in the media. His clout was so strong that he could get over the veto of even the ministry for environment and forests on clearing of thick forests in one day after pulling the right strings. This good relationship is witnessed by the foreword to the book written by Pranab Kumar Mukherjee, who was the former President of India and the union finance minister during Bhattacharyya's tenure.

It is often said that Indians go for a job, rather than a career so that at superannuation, most of them look for rest if the finances can assure it. However, the author continues to serve in the boards of some companies and maintains a watchful eye on movements in the coal sector. He has included two entire chapters on the way forward of the industry. As coal is wedded to power generation, upsets in loading of plants due to widespread adoption of solar and wind power stations are of utmost concern. To make the incremental cost of coal-based stations down, such plants should be installed close to the pit head. Indian coal should also explore the feasibility of diversifying into conversion to oil and manufacturing ammonia for fertilizer production. In a parting of ways with public sector ideology, he advocates the entry of mining giants with core competence into commercial coal mining in the country. This act would undo the disastrous diversion made during the license-quota-permit raj.

The book is written with the perspective of a finance professional with minimum technical discussion. This strains the readability at some points, but the diction, coming from a business executive, is impressive. A separate chapter titled ‘All about Coal’ is included as an appendix to handle the technical aspects, but it too goes the way of Finance. The author provides some very excellent tips regarding procurement in public sector undertakings which are bound by arcane rules and guidelines. A little bit of understandable self-pride is clearly evident between the lines, as seen in the verbatim reproduction of five different newspaper clips on the successful listing of CIL. Bhattacharyya carefully avoids all contentious issues, especially the evacuation of tribals which has raised much hue and cry in Odisha a few years ago. It seems that CIL didn’t have had to deal with such issues.

The book is highly recommended.

Rating: 3 Star