Tag: Coal India strike

8 January, 2015

Revealed: The real reason why Coal India unions were on a strike

Late yesterday evening, the trade unions representing Coal India workers called off their five day strike. “Consequent to the intervention by Mr Piyush Goyal, Union Miinister for Coal, strike by Coal India workers called off,” Coal secretary Anil Swarup said on Twitter.
The meeting of the trade unions with the coal minister Piyush Goyal lasted for over six hours. “The strike has been called off,” Lakhan Lal Mahato, leader of All India Trade Union Congress (AITUC), one of the five trade unions supporting the strike told the Press Trust of India (PTI) after the strike was called off. “Mahato, however, did not share the details of the terms and conditions of the agreement reached between the government and the unions,” PTI reported. The real damage of this agreement (if any) will be revealed only once the details of the compromise agreed upon come out.
The strike lasted two days and led to a dramatic fall in coal production. A Reuters report quotes a Coal India official as saying that “Coal India produced 645,000 tonnes on Tuesday (January 6,2015), less than half of its usual daily output at this time of year.”
The unions were protesting the government’s decision to disinvest its shares in Coal India and at the same time they don’t want any private participation in the coal sector in the country.
The government wants to sell 10% of its stake in Coal India, which will help the government bring down the fiscal deficit. The fiscal deficit for the period April to November 2014 was at 99% of the annual target. Fiscal deficit is the difference between what a country earns and what it spends.
The government currently owns 89.65% of Coal India and even after selling a 10% stake it will continue to own almost 80% of the company, which is good enough to continue to have managerial control over the company. Hence, the government is not selling out of the company lock, stock and barrel.
Coal India was and will continue to be a government owned company. So what is it that the trade unions really feared? For that one needs to take a look at the following table.

Coal India

Year	Total employee benefits expenses (in Rs crore)	Number of employees	Average employee compensation
2010-2011	19,851.78	39,0243	Rs 5.09 lakh
2011-2012	26,387.42	37,7747	Rs 6.99 lakh
2012-2013	27,320.78	36,4736	Rs 7.49 lakh
2013-2014	27,769.43	35,2282	Rs 7.88 lakh

Source: Coal India Annual Report 2013-2014

As is clear from the above table the average employee compensation for Coal India has gone up from Rs 5.09 lakh in 2010-2011 to Rs 7.88 lakh in 2013-2014, an increase of 55%. What needs to be kept in mind is the fact that 85% of the employees of Coal India are workmen. Their jobs fall largely in the semi-skilled category.
In yesterday’s column I had said that the well performing subsidiaries of Coal India, like Mahanadi Coalfields and Northern Coalfields have been doing well primarily because they have been outsourcing the excavation of coal. Interestingly, coal experts point out that the firms to which the excavation of coal is outsourced hire workers at around one fourth the cost of what Coal India employees get paid. And that makes the entire exercise of excavating coal through outsourcing more productive. What this tells us clearly is that Coal India employees are paid extremely well.
Now look at the following table which has the average employee compensation of ICICI Bank over the years.

ICICI Bank

Year	Total employee benefits expenses (in Rs crore)	Number of employees	Average employee compensation
2010-2011	2,817	56,969	Rs 4.94 lakh
2011-2012	3,515	58,276	Rs 6.03 lakh
2012-2013	3,893	62,065	Rs 6.27 lakh
2013-2014	4,220	72,226	Rs 5.84 lakh

Source: ICICI Bank annual reports

ICICI Bank is the largest private sector bank in the country (in terms of total assets). It has more or less a 100% skilled workforce. Nevertheless, the average employee compensation of the bank in 2013-2014 was only at Rs 5.84 lakh.
Hence, an average Coal India employee makes 35% more than an average ICICI Bank employee. This is surprising given that Coal India has a largely a semi-skilled workforce. As on December 1, 2014, out of a total workforce of around 3.38 lakh, the total number of workmen were at 2.86 lakh. And these Coal India employees get paid significantly more than they should be, given the skill-set that they have.
The trade unions are essentially trying to protect this. Their big fear is that if private companies are allowed to commercially mine coal (as the recently re-promulgated Coal Mines (Special Provisions) Ordinance allows for), salaries in the organised coal sector will go down. Private companies will have no reason to pay the kind of compensation that Coal India pays its workers. As mentioned above outsourced workers get paid one fourth of what Coal India workers make. Hence, trade unions are basically trying to protect this interest of the organised coal labour.
In the process they are hurting the interests of the country. Coal India produced 323.58 million tonnes of coal in 2004-2005. In 2013-2014, it produced 462.42 million tonnes of coal. The rate of production has increased at an average annual rate of 4.05%. The production of coal hasn’t kept pace with demand. During the same period, the total amount of coal imports has increased from 28.95 million tonnes to 171 million tonnes, at an average annual rate of 21.8%.
The per employee productivity of Coal India is very low in comparison to its global peers. A Reuters news-report points out that: “Coal India digs out about 1,100 tonnes of coal per employee a year, compared with 36,700 tonnes per employee at U.S.-based Peabody Energy and 12,700 tonnes per employee at China’s Shenhua Energy.” What Coal India needs is some competition and that is exactly what allowing private companies to commercially mine coal will do.
As Partha Bhattacharya, a former Chairman of Coal India put it in a September 2014 column in The Indian Express: “With multiple players that have both bandwidth and competence, a competitive scenario is expected to emerge sooner than later. Besides turning the current situation of acute coal shortage into one of abundance, competitive pressures are expected to bring prices well below the imported coal price, since the wage cost is likely to remain far lower in India than elsewhere, whereas productivity is expected to converge to international levels.”
To conclude, India clearly needs more coal. And that is only going to be possible if more companies are allowed to produce coal. But the labour unions representing the workers of Coal India do not want that. In the process the country needs to import coal at a price which is higher than the price of the coal produced domestically. Also, the country ends up using precious foreign exchange.
In fact, if India does not produce more coal in the years to come, the coal imports will only go up.
What does that really mean? It means that increasing Indian coal imports will help create jobs in foreign countries. Ultimately, the unions representing the workers of Coal India will be responsible for this. And this is clearly not a happy thought.

The column originally appeared on www.equitymaster.com as a part of The Daily Reckoning on January 8, 2015

7 January, 2015

Coal India unions are blackmailing the nation. Modi govt must call their bluff

Starting yesterday (i.e. January 6, 2015) five trade unions representing the workers of Coal India have gone on a five day strike. The strike is backed the Bhartiya Mazdoor Sangh, which is the labour union affiliated to the Bhartiya Janata Party and the Sangh parivaar.
The unions are essentially demanding that the government should not disinvest its shares in Coal India and at the same time they don’t want any private participation in the coal sector in the country. In December 2014, the government had re-promulgated the Coal Mines (Special Provisions) Ordinance. This ordinance allows the auctioning of coal blocks. The ordinance also has an enabling provision for commercial mining of coal by private companies.
This is something that has not gone down well with the unions. “A consensus has emerged among the unions after the government showed arrogance over re-issuing the ordinance without consultations with the trade unions,” Jibon Roy of Centre of Indian Trade Union (CITU), told the Financial Express. The Indian National Trade Union Congress, All India Trade Union Congress (AITUC) and Hind Mazdoor Sabha (HMS) are the other three trade unions backing the strike.
Reports in the media suggest that the strike has been effective and the production of coal has come down dramatically. A news-report filed by the Press Trust of India suggests that “out of the total production of 1.5 million tonnes a day, nearly 75 per cent has been hit.” Another report by Bloomberg puts the figure at a much lower 50%.
Coal India produces 80% of the nation’s coal. A major portion of this coal is supplied to thermal power plants. As the Bloomberg news-report points out: “Of the 100 power plants that run on local coal, 42 had supplies of less than seven days as of 1 January, according to the power ministry’s Central Electricity Authority. Twenty of these plants had less than four days of stock.”
What this means is that if the strike continues for five days the inventory levels of the power plants will fall further and that may lead to a power crisis. The unions understand this and are using this as a negotiating tool with the government. A Press Trust of India report points out that Yasar Shah, the minister state for Power in Uttar Pradesh, said the state may face electricity crisis if the strike by coal workers extended longer.
The question to ask here is are the points on which the unions have gone on a strike valid enough? Or are they simply resorting to blackmail?
The government needs to auction coal blocks/mines because the Supreme Court in September 2014 had cancelled the allocation of 204 out of the 218 blocks that various governments since 1993 had allocated to private companies for captive consumption.
The idea, as the Economic Survey of 1994-1995 pointed out, was to “encourage private sector investment in the coal sector, the Coal Mines (Nationalisation) Act, 1973, was amended with effect from June 9, 1993, for operation of captive coal mines by companies engaged in the production of iron and steel, power generation and washing of coal in the private sector.” This allowed private companies engaged in the production of iron and steel, power and cement to own coal blocks for their captive use.
The Supreme Court cancelled these allocations and in its decisions said that the “the entire exercise of allocation…appears to suffer from the vice of arbitrariness and not following any objective criteria in determining as to who is to be selected or who is not to be selected.”
Given this, the government now needs to auction these coal blocks. So, its just following a decision made by the Supreme Court. The trade unions by opposing this are essentially going against a decision made by the Supreme Court.
The trade unions are also protesting against the decision of the government to allow private companies to commercially mine coal. Why has the government made this decision? For the simple reason that Coal India is not producing enough coal to meet the demand.
As per estimates made by the Geological Survey of India, India has third largest coal reserves in the world of 301.56 billion tonnes. Nevertheless, we still need to import coal. Why is that the case?
Coal India produced 323.58 million tonnes of coal in 2004-2005. In 2013-2014, it produced 462.42 million tonnes of coal. The rate of production has increased at an average annual rate of 4.05%. During the same period, the total amount of coal imports has increased from 28.95 million tonnes to 171 million tonnes, at an average annual rate of 21.8%.
So what India needs is more coal. Coal India hasn’t been able to increase its rate of production at a rate which matches the rate of increase in demand for coal. Given this, it is common sense that more companies need to be allowed to produce coal, whether they are run by the government or they are privately run, doesn’t really matter.
Further, should the government be thinking about the more than 120 crore Indians as a whole or about around 3 lakh employees of Coal India who do not want private participation in the coal sector? The decision is a no-brainer. India needs more coal whether the unions representing the workers of Coal India like it or not.
It also needs to be pointed out that when it comes to paying its workers, Coal India is doing a good job. During the year 2010-2011, the total employee benefit expenses (salary, wages, allowances, bonus, leave travel encashment, contribution to PF, gratuity etc.) of Coal India amounted to Rs 19,851.78 crore. The company had an average manpower of 3,90,243 individuals during the course of the year. This means that the average amount of money that Coal India paid a single employee in 2010-2011 was at Rs 5,08,703.
In 2013-2014, the total employee benefit expenses amounted to Rs 27,769.43 crore. The average manpower during the course of the year had fallen to 3,52,282. This means that the average amount of money that Coal India paid a single employee in 2013-2014 mounted to Rs 7,88,273. This means that an average Coal India employee has seen a jump in payment of 55% over a period of four years, which is not bad by any stretch of imagination. Workmen make up nearly 85% of the employees of Coal India.
What these points clearly tell us is that the trade unions of Coal India are essentially blackmailing the nation and nothing more. The government needs to call their bluff even if it leads to some pain in the short term.

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

The column originally appeared on www.firstpost.com on Jan 7, 2015

7 January, 2015

Coal India: India’s biggest industrial strike in 38 years that no one is talking about

The unions of Coal India, the company which produces nearly 80% of the coal produced in India, have gone on a five day strike, starting January 6, 2015. The strike is supported by the five leading trade unions in the country, including the Bhartiya Janata Party backed Bhartiya Mazdoor Sangh (BMS).
The Press Trust of India reports that the strike is the biggest industrial action seen in any sector since 1977. It is also the biggest strike in the history of Coal India. Interestingly, the unions had boycotted a meeting called by coal minister Piyush Goyal last week.
The unions are essentially protesting the disinvestment and restructuring of Coal India. They also don’t like the idea of the government selling coal blocks to private parties. D Ramanandan, President of All India Coal Workers’ federation, told The Times of India that “The protests will not stop till the commercialization of coal blocks is not stopped”.
Long story short, the protesters want Coal India in particular and coal production in general to continue to be government owned in every way and keep private companies as far as possible. Nevertheless, the following table makes for a very interesting reading.

Name of the Coal India subsidiary	Number of employees (as on Dec 1, 2014)	Coal production between April and September 2014 (in million tonnes)
Mahanadi Coalfields	22,245	55.029
South Eastern Coalfields	69,012	54.367
Northern Coalfields	16,418	29.718
Central Coalfields	45,722	21.593
Western Coalfields	50,557	17.82
Bharat Coking Coal	57,184	16.106
Eastern Coalfields	69,739	15.967
North Eastern Coalfields	2,064	0.14

Source: www.coalindia.in

The table lists the eight coal producing subsidiaries of Coal India (the company has a ninth subsidiary called Central Mine Planning Design Institute, which does not mine coal). The North Eastern Coalfields produces a minuscule amount of coal and hence, can be left out of the analysis.
One look at the table will tell you that the two best performing companies of Coal India are Mahanadi Coalfields and Northern Coalfields.
For the period April to September 2014, Mahanadi Coalfields managed to produce 55.029 million tonnes of coal. As of December 1, 2014, it had an employee strength of 22,245.During the course of 2013-2014 it produced 114.34 million tonnes of coal or nearly one fourth of the coal that was mined by Coal India.
In case of Northern Coalfields the employee strength was 16,418. The coal produced amounted to 29.718 million tonnes. In 2013-2014, it produced 72.11 million tonnes of coal or around 15.6% of the total coal produced by Coal India.
It is also clear from the table that the company with the most number of employees, Eastern Coalfields, also produces the least amount of coal. The company with the third largest number of employees, Bharat Coking Coal, comes in second from the bottom when it comes to coal production. In 2013-2014, Eastern Coalfields produced just 36.25 million tonnes or 7.8% of the coal produced by Coal India. The same was the case with Bharat Coking Coal, which employed 17% of total Coal India employees but produced only 7.4% of coal that was produced.
The trend is clear here. Companies with fewer employees are producing more coal. The only exception to this is South Eastern Coalfields, which with 69,012 employees produced 54.367 million tonnes of coal during the first six months of this financial year.
Why is this the case? Why are companies with fewer employees producing more coal? The answer lies in the fact that companies which are producing more coal with fewer employees are outsourcing the excavation of coal. Also, the coal mines of Northern Coalfields are highly mechanised.
Another reason why Eastern Coalfields has a lower productivity is because it has many underground mines. In fact, during the first six months of this financial year, the company produced around 22.1% of its coal underground. The same stands true for Western Coalfields as well, which mined nearly 20.9% of its coal underground.
The overall number in case of Coal India was at 8%. Of the total of 210.74 million tonnes produced by Coal India between April to September 2014, 16.953 million tonnes was mined underground. The remaining coal was excavated from open cast mines.
This is an important point because the technology used to mine coal from underground mines is still very labour intensive and that to some extent explains the lower productivity of both Eastern as well as Western Coalfields.
Having said that companies like Eastern Coalfields and Bharat Coking Coal also have stronger trade unions (Eastern Coalfields is head-quartered at Sanctoria in West Bengal and Bharat Coking Coal at Dhanbad in Jharkhand, but right on the West Bengal border). This is another major reason which explains why these companies employ so many people to produce very little coal in comparison to other subsidiaries.
Nevertheless, outsourcing has made an inroad in the low productivity companies of Coal India as well. The contractual expenses of Eastern Coalfields have risen by 117% between 2009-2010 and 2013-2014. How does this compare with Coal India as a whole? The contractual expenses of Coal India in 2013-2014 stood at Rs 7812.71 crore, a rise of around 48% from 2010-2011. The annual report of the company points out that the contractual expenses have increased mainly due increased volume of contractual operations.
In simple English, more and more excavation of coal is being outsourced, even in a company like Eastern Coalfields, and this is something that the unions need to be more worried about than the government selling coal blocks to private companies.
It also needs to be pointed out here that the best performing companies of Coal India have huge operating margins. Mahanadi Coalfields earned a total revenue of Rs 12,033 crore during 2013-2014, with an operating profit of Rs 5429.08 crore, which means an operating margin of 45.1%. Interestingly, the company had an operating margin of 51.3% in 2012-2013. Northern Coalfields had an operating margin of of 40.1% in 2013-2014, having fallen from an operating margin of 54.2% that the company had earned in 2012-2013.
These companies should not be subsidiaries of Coal India. They should be allowed to operate on their own. Currently, these companies have a certain “command area” beyond which they cannot operate. Hence, Mahanadi Coalfields cannot operate a coal mine in the command area of Eastern Coalfields, even though the company is more productive at mining coal. These limitations need to be done away with for the simple reason that it will create more competition within the sector.
A recent report in the Business Standard newspaper suggests that the Suresh Prabhu-led ‘Advisory group for integrated development of power, coal and renewable energy’ “has quashed the idea of restructuring Coal India.” Nevertheless, the report does talk about empowering the subsidiaries of Coal India.

“(The) subsidiaries may be given adequate delegation of power, capital expenditure and operational flexibility, along with commensurate accountability, so that their dependence on CIL for decision making does not hamper fulfilment of targets set out for them,” the newsreport in Business Standard pointed out.
This is a good step forward. Ideally, the government should breakdown Coal India and let its subsidiaries operate on their own. Given that it does not want to do that, this is the next best step.
To conclude, India has the third largest coal reserves in the world of 301.56 billion tonnes as per estimates of the Geological Survey of India. But we still import a huge amount of coal.
Coal India produced 323.58 million tonnes of coal in 2004-2005. In 2013-2014, it produced 462.42 million tonnes of coal. The rate of production has increased at an average annual rate of 4.05%. During the same period, the total amount of coal imports has increased from 28.95 million tonnes to 171 million tonnes, at an average annual rate of 21.8%. What this clearly tells us is that India needs more coal. Not more Coal India.
The sooner the government realizes this, the better the energy scenario in the country is likely to be.

The column originally appeared on www.equitymaster.com as a part of The Daily Reckoning, on January 7, 2015