High risk, low return
Introduction
C oal

COAL INDIA LTD’s shareholder value is threatened by poor

corporate governance, faulty reserve estimations, regulatory risk and macro-economic issues.

India Limited is the world’s largest coal miner, with a production of 435 million metric tons (MT) in 2011 -201 2. There is significant pressure on CIL to deliver annual production growth rates in excess of 7%. The company has a 201 7 production target of 61 5 MT.[1 ] Coal India’s track record raises questions over its ability to deliver this rate of growth. In addition, serious governance issues are likely to impact CIL’s financial performance. These pose a financial and reputational risk to CIL, its shareholders and lenders, while macroeconomic issues in the Indian energy economy pose a long term threat to Coal India. • CIL’s attempts to access new mining areas are facing widespread opposition from local communities and environmental groups. With its reliance on open-pit mining, access to new mines are essential for CIL to achieve production targets. • CIL has grown reliant on shallow, open pit mining for 90% of its production, and has lost in-house expertise on deep mining techniques. • CIL has a record of poor corporate governance, manifested in rampant corruption, poor worker safety and repeated legal violations. This has, in the last year alone, led to penalties and closure notices for over 50 mines, threatening both its financial performance and reputation.

• CIL’s financial performance has been affected by directives from majority shareholder Government of India to keep coal prices artifically low.[2] According to one estimate, this cost CIL $1 .75 billion in the 201 2-1 3 financial year alone.[3] The government has also taken away coal blocks allocated to CIL and given them to private players.[4] • Changing economics of coal power in India; renewable