Fund threatens action against Coal India

A hedge fund has accused CIL board of failing to protect interest of minority stakeholders.

Written by Agencies | New Delhi | Published: March 13, 2012 5:46:47 pm

A UK-based hedge fund,which is a shareholder in Coal India (CIL),has threatened to take legal action against board members of the state-owned coal major for failure to protect interest of minority stakeholders.

“We are strongly considering a legal action against CIL’s individual board members for breach of fiduciary duties,if no clear commitments are made in the immediate future to provide parity of coal prices to import prices and rectifying the other breaches of fiduciary duties,” said The Children’s Investment Fund Management in a letter to CIL officials.

The hedge fund,headquartered in London,is one of the shareholders of the Coal India Limited (CIL). It has alleged that the CIL board is not acting independently of the government on several key issues including coal pricing.

The hedge fund further said it obtained a letter under the RTI Act,2005 wherein Coal Secretary Alok Perti had written to former CIL Chairman N C Jha “to revise down the then effective price notification dated December 12,2011 for various calorific bands and also set a deadline for the revision of January 31,2012.

“It is clear that the subsequent notification issued by CIL in January revising the coal price was an immediate result of the directions of the Central Government,” it said.

In January,CIL had rolled back the hike in coal prices it effected from January 1 in the face of stiff opposition from user firms,including power,to its new pricing formula.

CIL had shifted to a new pricing mechanism (based on GCV) from January 1. Under this system,prices are linked to the actual calorific value,or quality,of coal.

The new pricing mechanism resulted in an increase in rates of the fossil fuel,even though the Coal Ministry had indicated the new formula would be revenue-neutral.

Till December 31,2011,CIL used to follow a pricing mechanism based on the Useful Heat Value (UHV) of coal,which deducted ash and moisture content from the standard formula.

“It is unacceptable that the board in acting in this manner and not protecting the minority shareholders.”

The Children’s Investment Fund Management further alleged that “there was no push at all from CIL’s board to the instructions from MoC. In fact,they simply implemented the government’s instructions without any debate,question or challenge,in breach of their fiduciary duty”.

The London-based fund also said there were several other cases in the past wherein the board failed to protect the interest of minority shareholders.

The cases includes no opposition from the board against the draft mining bill prior to the approval from the cabinet,lack of progress in the implementation of coal washeries among others.

Shares of CIL closed at Rs 342.20 a piece on the BSE,1.80 per cent up from the previous close.

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