CIL Penalized For Unfair Trade Practices

CIL (Coal India) may have to pay a penalty of Rs 1773 crore, the Competition Appellate Tribunal (Compat) continued the stay on penalty, slapped by the Competition Commission on India (CCI) for unfair trade practices. It will be decided on March 13, 2014 whether the penalty will be imposed or not. The miner will also have to deposit Rs 50 crore in three weeks to the tribunal. 

The charges against Coal India and its three subsidiaries, Mahanadi Coalfields, Western Coalfields and South Eastern Coalfields were filed by Wardha Power, a Maharashtra state power generation company and Gujarat State Electricity Corporation for supplying low quality coal at a high price and also retaining the right to unilaterally terminate contracts with buyers. They were not providing fair dispute redressal mechanism and also preferred state owned companies over private buyers of coal. 

The penalty imposed has been calculated on 3% of the company's average revenue from 2009-2012. The revenue of CIL in FY 09-10, FY10-11 and FY11-12 were Rs 52252.09 crore, Rs 55101.42 crore and Rs 69952.33 crore respectively. The average revenue during this period was Rs 59101.95. Meanwhile, the 3% of the average revenue of this period was Rs 1773 crore.

In another development, the Coal Mines Officers’ Association (CMOAI) has demanded the performance-linked pay, which is due since 2007 and also to implement new pension schemes. As per the guidelines of the department of public enterprises (DPE), companies are not allowed to distribute performance-linked pay in the absence of sufficient Profit Before Tax (PBT).

But CIL has sought permission to determine the amount of performance-linked pay since 2007 on PBT, based on its consolidated accounts instead of individual accounts of the subsidiaries. If this is allowed, then the company will have to pay around Rs 200 crore on account of performance-linked pay to its loss making subsidiaries, ECL and BCCL.

Earlier, this company has paid special dividend of Rs 29 per share amounting to around Rs  18317 crore. It has paid Rs 3100 crore as dividend distribution tax. Coal India, which accounts for around 80% of India's total coal output, has missed the production target for several years. In this fiscal year, the miner is expected to miss the target of 482 million tonnes by around 5 million tonnes. The amount of coal produced in the country is not adequate. India has become the third largest coal importer in the year 2013, importing a total of 152 million tonnes.

These activities are going to reduce the cash balance of the company. CIL declared huge special dividend in the month of January this year. The starving government is going to benefit more from it than the retail investors. The company has cash balance of Rs 64274.28 crore as on September 2013. If CIL has to pay the penalty, the cash balance of the company will be reduced to Rs 40871 crore after reducing the amount of dividend (Rs 18317.46 crore), dividend distribution tax (Rs 3113.05 crore), performance-linked pay (Rs 200 crore) and penalty (Rs 1773 crore). Due to this, the cash per share of the company will reduce to Rs 64.01 compared to Rs 101 in the Q2FY14.