The proposed five per cent divestment of the equity shares held by the Government in Coal India Ltd. (CIL) is expected by mid-December — around the same time that five major trade unions have called a strike to protest against the divestment.

However, that is not the only shadow that is being cast on the plan CIL Chairman S Narsing Rao has just participated in a road show to promote the issue, through which the cash-strapped Government expects to raise at least Rs. 8000 crore .

Investors have many apprehensions about the issue. Although coal prices were deregulated in January 2000, it is well nigh impossible for CIL to raise prices without the tacit approval of the government, they feel.

The FSA (fuel supply agreement) issue, over which CIL’s independent directors had raised a storm, has not brought cheer to the company’s existing investors either, although the high-decibel protest launched by an overseas asset management company was somewhat exaggerated.

The fact remains that in face of weak demand from the power sector, CIL is not facing any problems in honouring its FSA commitments. But once the demand picks up and new capacities are commissioned, CIL may have to pay penalties.

The drop in e-auction sales, necessitated mainly due to allocating greater part of output for meeting FSA requirements, has also impacted CIL’s profits. Moreover, while production has improved, growth rates are still low. First quarter revenues were lower than estimates due to a weak e-auction realisation.

There is also unease over CIL’s inability to productively utilise its over Rs. 50,000 crore reserves. In the absence of an adequate number of projects (241 projects are stuck due to environmental and forestry clearances) or success with acquisition of overseas properties, CIL is left with little choice other than to earn treasury income though this money.

Last but not the least is the performance of the CIL stock. Issued at a price of Rs. 245 in October 2010, the price zoomed to Rs. 345 on its listing day on November 4. It earned the government a record Rs. 15,199 crore. The stock started losing its sheen due to sluggish production growth in 2010-11, and moved below the Rs. 300-mark. The February 2011 coal price revision saw the stock zoom to dizzy heights. The performance of the stock thereafter has been rather indifferent.

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