Coal India hides the truth about coal reserves from investors

Greenpeace files complaint with SEBI

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Feature story - September 24, 2013
Greenpeace has found that the world's largest coal producer, Coal India Limited which is also a public enterprise, is misleading potential shareholders by concealing the true level of its extractable coal reserves. This revelation comes as Coal India prepares to sell additional shares to international investors as well.

 

According to the report, Coal India, Running on Empty?, released on September 23, the company has failed to disclose to stock exchanges an internal assessment that shows that its extractable coal reserves are 16% less than stated at the time of its 2010 listing. This is a clear violation of Indian stock exchange rules. Greenpeace India has filed an official complaint with the Indian Stock Exchange regulator, SEBI (Securities and Exchange Board of India), against Coal India for concealing material evidence on the scale of their coal reserves. Coal India has done this in contravention of the terms of the Listing Agreement under the Indian Securities Contracts Regulations Act, 1956.

Coal India claims on its website that it has 21.7 billion tonnes of extractable coal reserves, yet a review of its own internal documents undertaken by Greenpeace and the Institute for Energy Economics and Financial Analysis (IEEFA) has shown that the company has only 18.2 billion tonnes of extractable coal, as per the United Nations reserve classification system. At targeted production rates, these reserves could be exhausted in 17 years.

Commenting on the revelation, Ashish Fernandes from Greenpeace says, "Coal India is trying to deceive its present and future shareholders by hiding the fact that its extractable reserves are almost a fifth less than it claims. Coal India has a legal duty to tell the truth and they are failing to do that."

Coal India has also contracted four of the world's largest banks, Bank of America, Deutsche Bank, Goldman Sachs and Credit Suisse, to push its new share offer on the international stage, despite unions threatening to strike if the sale goes ahead, and with the company share price dropping in recent weeks.

24 September 2013

A Part of Nigahi coal mine, India's largest open cast mine, operated by NCL a subsidiary of Coal India in Singrauli, Madhya Pradesh.

 

On the illegal nature of Coal India's claims, Supreme Court Advocate, Shaunak Kashyap says, "Coal India is in violation of statutory provisions particularly the SEBI Act, the Listing Agreement under the Securities Contracts Regulations Act, 1956, and SEBI's April 3, 2006 circular relating to disclosure of material events. It is a matter of grave concern that a government controlled company has failed to notify the exchanges of this reduction in their reserves, something that has serious implications for both investors and the country at large."

In light of this evidence, the four banks have a moral and legal responsibility to ensure that material facts relating to the company's reserves are disclosed to investors.

The new data about Coal India's reserves also casts doubt on the government's ability to sustain its planned investment in coal-fired power plants. Coal India currently supplies 80% of the country's coal and India has plans to add over 100,000 MW of new coal by 2017, even though the company is struggling to supply existing power plants currently. As a result, spiralling coal imports have played a role in India's ballooning Current Account Deficit and have also led to higher power tariffs for consumers.

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