🧐 Yet Another Privatisation Coming Ahead?
Coal India is thinking of taking its subsidiaries public. Here's the rationale behind this move and our take on it.
We recently talked about how the government is planning on going on a privatisation spree and it seems like our words are already coming true.
Coal India Limited is reportedly planning on taking all its 8 subsidiaries public.
But why?
🤔 Coal is A Private Affair
Wait, ReadOn, before you begin, didn't you just talk about privatisation? How can Coal India be private if it is going public?
Well, the government is currently the majority shareholder in Coal India Ltd.
But it is now planning on selling the company to private investors or the general public.
So, it is being privatised by going to the public.
However, we're not entirely sure if the government will privatise Coal India or divest ownership.
What's the difference?
You see, privatisation is when the government gives up full control of a public sector undertaking: like in the case of Air India.
But if the government is only diluting ownership by giving away part of its stake, then the process is called disinvestment: like in the case of LIC.
Currently, the coal ministry has approved a draft note to sell 25% of Coal India's consulting unit, Central Mine Planning and Design Institute.
The plans to divest or privatise other subsidiaries are unclear as of now.
Now, back to our original question. Why this plan anyway?
Well, these subsidiaries are ripe for sale right now thanks to the increase in demand for coal.
Our really really hot summers have caused us all to crank up our fans, ACs and coolers.
This means we need lots of electricity. And for that, we need lots of coal.
Yes, 72% of our electricity still comes from coal.
And with energy demand set to rise, our demand for coal is set to hit 1.5 bn tonnes (an increase of 63% from current levels) by 2030.
So, Coal India thinks it can find a lot of buyers right now.
Okay, ReadOn but why sell at all? Why can't the government keep running Coal India?
📜 Reasons for Privatisation
You see, the government believes that this "non-core" sector will do better in the hands of the private sector. It believes that the private sector will bring in more efficiency and order to the coal industry, which is the need of the hour.
And to some extent the government is right.
Even though like many other PSUs, Coal India isn't riddled with huge losses, it has other financial issues.
For instance, power utilities and power distribution companies owe Coal India Rs. 12,300 crores and Rs. 1,10,000 crores respectively.
Because of this, the sector doesn't really have money for research and development.
It has also had to shut down 82 mines in the last 3-4 years because it wasn't sustainable for it to run them any longer.
However, many of these mines still had extractable coal (around 380 million tonnes), which is why the PSU is now also offering these up to the private sector.
But just giving a few old mines will not help the company.
The government feels the only way to unlock the potential of this sector is through the entry of the private sector.
But the private sector is just as unimpressed with this offer as it had been with the auction for private railway tracks.
Over 70% of mines attracted no bids. Why?
Because even though demand for coal may be temporarily rising most private players know that the future of energy is green.
With governments across the world now taking climate change seriously (finally), not only will the demand for coal soon fizzle out, the industry will also probably come under a lot of regulation.
And India is also prioritising green energy now to achieve its goal of going carbon neutral by 2070.
In this scenario will Coal India subsidiaries find buyers?
And even if they do, should the government privatise them?
You see, the reason the coal industry was strictly kept under government regulation all these years was that the private sector was too good at coal extraction.
In its pursuit of efficiency, the sector often disregarded things like worker safety, the environment, and a concern for natural resources.
So, giving this sector back in the hands of the common public, that is if there are any takers, could bring back these problems.
But for now, privatisation is mere speculation. In the last year itself, the government has tried to privatise several companies but failed.
So, we'll have to wait and see what happens in the case of Coal India.
⚡In a line: The government is planning yet another privatisation but just like others before it, its prospects don’t seem very good.
💡Quick question: Should the government privatise Coal India?
Share this with your friends via WhatsApp or Twitter and help them declutter news from noise! See you tomorrow :)
You can also listen to our stories. Catch it on Spotify, Apple Podcast, Amazon Music, Google Podcasts, Gaana or Jio Saavn.
If you are coming here for the very first time: Don’t forget to join us on WhatsApp to get daily updates! 👇