Coal India achieves remarkable growth without major management rejig

Despite significant management restructuring, government-run mining company ONGC could not deliver a notable increase in output

In just two years, state-owned Coal India Ltd (CIL) has raised its production by 151 million tonnes (MT). To put the number in perspective, CIL was producing just an average of 495 MT annually for a decade till FY22. 

So, how did the company achieve this turnaround? Fund manager Jefferies surprised the market in mid-March with its ‘buy’ call projecting a 27 per cent upside on the stock price. 

CIL is and will remain a government-owned company in the foreseeable future. The company has not rejigged its management much, except to appoint an Executive Director (operations) to its team. Despite the concerns about coal in the overall climate story, CIL seems to be one of the rare global coal miners that is on a roll.  

Down the road, the other key government-run mining company, ONGC, has thoroughly revamped its management team, even changing the powers of the corner office. But those changes do not seem to have led to any substantial jump in the output of the company. 

“A key change brought in has been the huge mechanisation of operations in CIL”, said Pramod Agrawal, former chairman and managing director of CIL. He said from about 100 MT which CIL used to extract using only mechanised operations as late as FY19, the number has jumped close to 500 MT. 

This is a big change for CIL. The company has over 300 operational mines but 75 percent of its total annual output is extracted from 36 mines. “Output from these mines was keenly followed up”, said a company source. 

For decades, CIL was attempting to travel this route. But a huge employee overhang, among other things, had precluded this route. In FY12, the company employed close to four lakh people as permanent employees. Those numbers have almost halved since then. At the end of FY22, the total employee expenditure was Rs 40,700 crore, which is about 45 percent of the total expenditure of the company. Yet, set against the rising production, this had created a head-room. 

The headroom was for the investment in capital assets. Even in FY21, the company’s capex was Rs 6,800 crore. This jumped up to Rs 13,284 crore the next year, and Agrawal as the CMD could claim credit for that. In FY23, the sum has risen again impressively to Rs 16,500 crore. A big share of that money was for buying heavy earth moving machinery and silos for mechanised transportation of coal. 

The Gevra mine 

If there was one mine with which the CIL story can be entwined, it is Gevra in Chhattisgarh. It is the country’s largest opencast coal mine with a capacity of 52.5 MT per annum. The mine has this year got environmental clearance to expand its production capacity to 70 MT. Expectedly, there were several attempts by interest groups to deny this clearance.

Like all big mines of CIL, this one too is not operated by CIL but by a mine developer and operator (MDO). These operators get permission to extract coal from the mines and then sell those to CIL. “We have identified 15 MDO projects, for outsourcing the production, which have a combined targeted capacity of 173 MTs per year. Of these, four have contributed around 7 MTs of coal till February of the current fiscal”, said a source in the company. 

Management change 

CIL veteran Agrawal says it is thus not a management rejig but bringing together all the disparate pieces together which have made the CIL story happen. “The changes were commissioned over some years, but their effect has become visible now”, he said. This is significant. 

A senior company official said for the execution of specific major projects CIL takes on board consultants. “Otherwise, the company steers on its own since the company has a large pool of experienced multidisciplinary professionals”.

CIL was under pressure to deliver. Import of coal has not declined except episodically. An S&P Global Ratings report from February this year notes, "Elevated (imported coal prices will slow the deleveraging of Indian steel players....The key factors are supply constraints in Australia, Red Sea tensions, and strong demand from India and other ex-China markets". So the coal ministry was keen that the almost monopoly producer (including sister SCCL) should ramp up its production fast. 

Hiring of management consultants could have offered the elbow room to negotiate with the government. Instead, CIL management discovered that MDOs could be put under pressure. It began to sign and renew annual contracts for mines in quick time, paying dues quickly. This included demands to step up efficient and environment-friendly coal dispatch which it calls the “first-mile connectivity”. Since a large number of MDOs were willing to join the race, output soared without lag. It would see CIL, as the effusive Jefferies report points out, has delivered in the somewhat old-fashioned way of making the parts work. 

As a result, in FY23, CIL breached the 700 MT mark (703.2) production for the first time, recording an annual increase in volume terms of about 81 MTs. Despite the high base the production has grown by 70 MTs (till 22 March 2024) to 746.6 MTs, the target is 780 MT. “Considering the coal requirement of the nation CIL has been assigned a production target of 838 MTs for FY 2025” the source added. It has been a long time since CIL was the front-runner among PSU stocks, it has however done so now.