By Ajoy K Das

June 12, 2017 - India’s Coal Ministry is unlikely to break up the monolithic corporate structure of Coal India Limited (CIL) as recommended by a government policymaking body.

“It is not at all advisable and we are not taking up the recommendation at all. CIL will continue to be one entity,” India's Coal Minister Piyush Goyal said in a statement.

The National Institute for Transformation of India (NITI) Aayog, the government’s policymaking think tank, earlier this month suggested breaking up of CIL’s seven wholly owned operational subsidiaries and one mine planning and consultancy company, into independent entities.

NITI Aaayog argued that breaking up the holding company structure of CIL and resultant conversion of the wholly owned subsidiaries into standalone corporate entities would ensure competitive coal mining by each of these seven companies.

In a meeting with the Prime Minister, during which the outline for breaking up CIL was sketched, NITI Aayog said it would finalise a road-map for unbundling CIL by next month.

The policy advisory body said that coal mining was inefficient, owing to constraints in the coal market and a lack of cost pass-through in electricity tariffs. It stated that independent mining companies – the proposed avatars of CIL subsidiaries – would rectify this by competing against each other.

It was pointed out that for years it had been proposed that a coal sector regulatory body be established to ensure transparency of coal mining, fair pricing and monitor competition, but in the absence of such a regulator, unbundling CIL was deemed to be a viable option to achieve the same ends.

CIL coal blocks are awarded through the nomination route and operated on a cost-plus basis;  however, NITI Aaayog believes a market determined price regime is needed for higher efficiency of coal producers and thermal power producers.

Significantly, the proposal to break up CIL also runs counter to the Indian government’s overall plans to create mega-corporations in related energy sectors through mergers of government-owned companies to achieve scale of operation and consolidation of financial muscle. For example, the Indian government has announced plans to create an oil sector behemoth merging 13 oil, gas exploration and production and marketing companies owned and operated by it.

Also there are 14 government-owned and -operated companies in power generation and distribution and  the possibility of merging these into a single entity has also been put on the table.