CIL board still undecided on fuel supply agreements

Private power producers’ hopes to secure low-cost supplies from Coal India (CIL) continued to hang in the balance as the state-run firm’s board could not approve contractual conditions for the second time in a week. Meanwhile, UK-based hedge fund The Children’s Investment Fund has threatened arbitration alleging that discounted sales violate bilateral investment treaties.

Coal Minister Sriprakash Jaiswal confirmed receiving a note from TCI but said the hedge fund should realise that the Indian government would always balance the interest of investors as well as India’s poor, who need affordable power, steel and cement.

Coal India’s board could not approve the draft Fuel Supply Agreements ( FSA) after two marathon meetings in less than a week and decided to meet again on Thursday. The prime minister’s principal secretary Pulok Chatterji has directed Coal India to sign FSAs by March 31 but some Coal India officials as well as independent directors are concerned that such contracts would expose the company to the risk of severe penalties for 20 years.

The Children’s Investment Fund issued a statement saying it had served a notice to several government authorities alleging that the PMO’s instructions to the company violated bilateral investment treaties with Cyprus and UK. It said discounted sales to power firms violated the interests of Coal India’s minority shareholders such as the fund, which has a stake of about 1% of the company but is the largest shareholder after the government. “By selling the natural resource below market value, the government is only helping wealthy industrialists. This is similar to the 2G telecom scandal,” Oscar Veldhuijzen, Partner, TCI alleged.

The fund, which holds its stake through two entities in UK and Cyprus, has written to the government seeking settlement of the issues within six months failing which it will begin arbitration under provisions of bilateral investment treaties, TCI said in a statement. TCI has objected to the directive asking CIL to sign FSAs. The fund also opposed alleged allocation of lucrative CIL blocks to private firms and delayed clearances by environment ministry.

This breaches government’s obligation to accord fair and equitable treatment under the two bilateral investment treaties, TCI said. “It is a clear abuse of minority shareholders. Once a company is listed, the board’s decision has to be in the best interests of all shareholders… We were told during the IPO that coal prices would be linked to the market. That is why we invested. If the government wants to run it as it pleases, the company should not have been listed,” Veldhuijzen said.

–ET

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