Public sector rights

Coal India right to defy ministry on e-auctions

In a brave and welcome move, the board of the state-controlled coal monopolist, Coal India Ltd, has defied a directive from Coal Minister Piyush Goyal. The minister recently announced in Parliament that Coal India would reduce the amount of its coal it auctions online by a half, so as to make more coal available to power plants. The coal that power plants receive is priced less than the sum that the company is likely to receive from its auctions. Coal India's board, therefore, decided on Tuesday that it would object to Mr Goyal's instructions, since that would reduce revenue and harm shareholders.

The board is right. Mr Goyal's directive was retrograde. Speaking in the Rajya Sabha, he had declared that selling "large amounts of coal" through auctions was "not in the public interest" since "Coal India's primary duty is to supply to power plants". This is odd not just because seven per cent of Coal India's total production, the amount sold through e-auctions, is hardly "large amounts". But worse, it betrays a view of public-sector enterprises that belongs in a different, statist age. The public sector is not a milch cow. It needs to be provided with the freedom to make decisions based on market conditions, not directives from the ministry under whose administrative control it operates.

On the campaign trail, Prime Minister Narendra Modi repeatedly stressed that he believed in a strong public sector. But Mr Goyal's directive is exactly the sort of thing that weakens the public sector. It is worth remembering that similar directives to Coal India under the previous government served to do exactly that. Indeed some minority shareholders objected vociferously. Just because the majority owner of a company is the government, that does not mean that minority shareholders' rights can be ignored. Mr Goyal is wrong: Coal India's primary duty, as a listed company, is not to supply to power plants, but to provide a sustainable return to its investors. It is good that increasing electricity supply is high on the government's agenda. But Mr Goyal should not focus on Coal India as the problem. Instead, he should work on repairing the links between power producers and consumers, and ensuring that market-based pricing operates at all steps along that link. This is the real problem with the power sector - and auction of coal should play a larger part in his vision, not a smaller one.

There is an additional reason why e-auctions should not be reduced in scope, as the minister desires. And this is because they are far less prone to misuse and corruption than other options. This is a consideration that should have been front and centre in the decision, given the political salience of accusations of corruption in the natural resource sector, particularly coal, in the recent past. Overall, while Mr Goyal's intent - ensuring that power plants get adequate supplies of coal - can hardly be faulted, it is unfortunate that his focus is in the wrong direction. The correct end-user fees will allow distribution companies to be profitable - which, in turn, will ensure that they pay their dues to power plants, which will be able to afford coal at the market price. Reform is harder work than instructing public-sector companies to comply with directives.