Concerns linger over Coal India Limited divestment
Deutsche Equities India Private Limited (DEIPL) — merchant banking arm of Deutsche Bank — had written its correspondence to Aaradhana Johri, the then secretary of DIPAM. Ilustration: C R Sasikumar Deutsche Equities India Private Limited (DEIPL) — merchant banking arm of Deutsche Bank — had written its correspondence to Aaradhana Johri, the then secretary of DIPAM. Ilustration: C R Sasikumar
While the central government has been planning to disinvest 10 per cent of its shareholding in Coal India Limited (CIL) for approximately last 17 months, some of the major red flags raised by the merchant banks — including Deutsche Bank and Citi Bank — have been related to the company’s environment policy, death of its workers in coal mines and employment of child labour. The central government currently has 78.86 per cent shareholding in the CIL.
According to sources involved in CIL’s disinvestment process, these red flags are one of the primary reasons inhibiting many investors currently. Therefore, with various international pension funds and other investors — especially from American subcontinent and European subcontinent — raising these critical issues regarding the CIL, the central government in September last year asked the merchant banks, who are managing CIL’s disinvestment, to “explore possibility of inclusion of Qatar based investors” in this process.
On August 12, 2015, the Department of Investment and Public Asset Management (DIPAM) had issued a request for proposal (RFP) from merchant bankers to conduct 10 per cent share divestment in CIL through Offer for Sale (OFS) process. The DIPAM expected more than 20 merchant banks to put in their bids. “During this time, Deutsche Bank and Citi Bank wrote to central government raising serious issues — environment as well as labour — related to the functioning of CIL,” said a government official privy to the development.
Deutsche Equities India Private Limited (DEIPL) — merchant banking arm of Deutsche Bank — had written its correspondence to Aaradhana Johri, the then secretary of DIPAM. “In its correspondence, the Deutsche bank stated that its investors, who are in touch with the bank, follow certain environment and labour standards. Then, in a detailed two-page note, the bank then elaborated how the CIL is violating various such standards. The bank then asked secretary (Johri) to take some action at CIL. It (bank) stated that it would be able to participate in bidding if CIL is able to follow the standards set by investors,” the government official added.
Citi-Group Global Markets India Private Limited (CGMIPL) — merchant banking arm of Citi Bank — also raised similar concerns with the DIPAM. “The Citi Bank, in a one page note, explained how the CIL was not up to the mark on various environment and labour standards. It requested the secretary to take some action on these issues,” the government official said. Both — Citi Bank and Deutsche Bank — did not respond to the queries sent by The Indian Express.
The government decided to call a meeting of merchant bankers on October 1, 2015, to discuss “environmental and social risk management issues having a bearing on disinvestment in CIL”. Explaining the “need for current meeting”, the DIPAM stated in an internal document : “Government is proposing to disinvest 10 per cent of its paid up equity in CIL and the environmental issue have again surfaced, affecting participation by the merchant bankers in the bids. (Copies of emails received from Citi Bank and Deutsche Bank are enclosed as Annexure C & D). Accordingly there is a need to review progress made by CIL on the above defined goals.”
Merchant bankers who participated in this meeting were DEIPL, CGMIPL, Elara Capital India Limited, Merrill Lynch Limited, Kotak Mahindra Capital Company Limited, J P Morgan Indian Private Limited, HSBC Securities and Capital Market (India Private Limited), SBI Capital Market Limited, Barclays Securities (India Private Limited), Axis Capital Limited, Edelweiss Capital Limited, ICICI Securities Limited, YES Bank and J M Financial Securities India Private Limited.
“The merchant bankers raised concerns over reports of deaths of workers in coal mines, engagement of children in mining operations and green house emissions. They emphasised the need to enhance safety measures so as to significantly bring down deaths in mining operations, to obtain third party certification from reputed international agencies on various safety and environmental issues, and to have greater stakeholder consultations,” said the minutes of this meeting that has been reviewed by The Indian Express.
At this meeting, it was clarified by the CIL that there has been constant reduction in deaths of workers over the years, and the number of deaths because of mining operations is low considering the number of people employed by CIL. “A number of deaths happen because of accidents involving trucks and dumpers, which are being addressed through training of CIL executives, truck and dumper operators, the workers and through alarm systems. CIL got some of its executives specially trained in Australia on safety measures, who in turn are training others so as to bring down accidents and workers mortality to bare minimum,” the CIL stated at the meeting.
On the issue of reports of engagement of children in the mining activity, it was clarified by the CIL that Mines Act, 1952, prohibits employment of persons below 18 years of age in mining activities and accordingly CIL or its contractors do not engage in any child in mining activities. Four senior officials of CIL had participated in this meeting. A P Singh, the then joint secretary at DIPAM, and R P Gupta, joint secretary, ministry of coal, had participated in this meeting too.
“On the issue of green house emissions, it was pointed out that CIL only produces coal, and any carbon emissions is limited to mining activities. Major carbon emissions happen during downstream operations involving generation of power, which is handled by other agencies, and there are also efforts being made to reduce carbon emissions and promote use of cleaner energy. As regards measurement of carbon emissions happening during mining operations, CIL assured to appoint consultants to measure and monitor such emissions,” the minutes of the meeting stated.
“On the issue of third party certification, it was pointed out that even now the operations of CIL are closely monitored by ministry of labour and ministry of environment, who conduct regular audits. However, keeping the request of merchant bankers in mind, they will consider engaging international agencies as well, according to the prescribed norms,” the minutes of the meeting noted.
At this meeting, it was agreed that there will be regular interactions on environmental and social risk issues with various stake holders and CIL will appoint a nodal officer for that. It was decided that CIL will disseminate information of measures taken in this context, including through media campaign and by having a separate section on these issues in the annual report.
Moreover, at this meeting, it was decided that the executives of merchant bankers attending the meeting will brief their compliance teams and senior executives on the discussions held during the meeting and revert in one week with their observations. “CIL will make an action plan as per agreed points and the matter will be pursued pragmatically by both sides, given exaggerated concerns and limitations of quick results in a complicated manner,” the minutes of the meeting stated.
According to one of this meeting’s participant, “the replies of CIL were not found to be satisfactory by many merchant bankers”. Ultimately, major international banks such as Citi Bank, Deutsche Bank, Merrill Lynch, J P Morgan and Barclays decided to not bid for conducting CIL divestment process. Edelweiss Capital, Elara Capital, HSBC Securities, ICICI Securities, SBI Capital, Axis Capital, Kotak Mahindra and J M Financial had put in their bids with DIPAM — the latter five have been selected to manage the OFS process of CIL.
For all the latest India News, download Indian Express App now