India's biggest industrial strike in 38 years that no one is talking about - The Daily Reckoning
The Daily Reckoning by Vivek Kaul
On This Day - 7 January 2015
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India's biggest industrial strike in 38 years that no one is talking about A  A  A

- By Vivek Kaul

Vivek Kaul
The unions of Coal India, the company which produces nearly 80% of the coal produced in India, have gone on a five day strike, starting January 6, 2015. The strike is supported by the five leading trade unions in the country, including the Bhartiya Janata Party backed Bhartiya Mazdoor Sangh (BMS).

The Press Trust of India reports that the strike is the biggest industrial action seen in any sector since 1977. It is also the biggest strike in the history of Coal India. Interestingly, the unions had boycotted a meeting called by coal minister Piyush Goyal last week.

The unions are essentially protesting the disinvestment and restructuring of Coal India. They also don't like the idea of the government selling coal blocks to private parties. D Ramanandan, President of All India Coal Workers' federation, told The Times of India that "The protests will not stop till the commercialization of coal blocks is not stopped".

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Long story short, the protesters want Coal India in particular and coal production in general to continue to be government owned in every way and keep private companies as far as possible. Nevertheless, the following table makes for a very interesting reading.

Name of the Coal India subsidiary Number of employees (as on Dec 1, 2014) Coal production between April and September 2014 (in million tonnes)
Mahanadi Coalfields 22,245 55.029
South Eastern Coalfields 69,012 54.367
Northern Coalfields 16,418 29.718
Central Coalfields 45,722 21.593
Western Coalfields 50,557 17.82
Bharat Coking Coal 57,184 16.106
Eastern Coalfields 69,739 15.967
North Eastern Coalfields 2,064 0.14
Source: www.coalindia.in

The table lists the eight coal producing subsidiaries of Coal India (the company has a ninth subsidiary called Central Mine Planning Design Institute, which does not mine coal). The North Eastern Coalfields produces a minuscule amount of coal and hence, can be left out of the analysis.

One look at the table will tell you that the two best performing companies of Coal India are Mahanadi Coalfields and Northern Coalfields.

For the period April to September 2014, Mahanadi Coalfields managed to produce 55.029 million tonnes of coal. As of December 1, 2014, it had an employee strength of 22,245.During the course of 2013-2014 it produced 114.34 million tonnes of coal or nearly one fourth of the coal that was mined by Coal India.

In case of Northern Coalfields the employee strength was 16,418. The coal produced amounted to 29.718 million tonnes. In 2013-2014, it produced 72.11 million tonnes of coal or around 15.6% of the total coal produced by Coal India.

It is also clear from the table that the company with the most number of employees, Eastern Coalfields, also produces the least amount of coal. The company with the third largest number of employees, Bharat Coking Coal, comes in second from the bottom when it comes to coal production. In 2013-2014, Eastern Coalfields produced just 36.25 million tonnes or 7.8% of the coal produced by Coal India. The same was the case with Bharat Coking Coal, which employed 17% of total Coal India employees but produced only 7.4% of coal that was produced.

The trend is clear here. Companies with fewer employees are producing more coal. The only exception to this is South Eastern Coalfields, which with 69,012 employees produced 54.367 million tonnes of coal during the first six months of this financial year.

Why is this the case? Why are companies with fewer employees producing more coal? The answer lies in the fact that companies which are producing more coal with fewer employees are outsourcing the excavation of coal. Also, the coal mines of Northern Coalfields are highly mechanised.

Another reason why Eastern Coalfields has a lower productivity is because it has many underground mines. In fact, during the first six months of this financial year, the company produced around 22.1% of its coal underground. The same stands true for Western Coalfields as well, which mined nearly 20.9% of its coal underground.

The overall number in case of Coal India was at 8%. Of the total of 210.74 million tonnes produced by Coal India between April to September 2014, 16.953 million tonnes was mined underground. The remaining coal was excavated from open cast mines.

This is an important point because the technology used to mine coal from underground mines is still very labour intensive and that to some extent explains the lower productivity of both Eastern as well as Western Coalfields.

Having said that companies like Eastern Coalfields and Bharat Coking Coal also have stronger trade unions (Eastern Coalfields is head-quartered at Sanctoria in West Bengal and Bharat Coking Coal at Dhanbad in Jharkhand, but right on the West Bengal border). This is another major reason which explains why these companies employ so many people to produce very little coal in comparison to other subsidiaries.

Nevertheless, outsourcing has made an inroad in the low productivity companies of Coal India as well. The contractual expenses of Eastern Coalfields have risen by 117% between 2009-2010 and 2013-2014. How does this compare with Coal India as a whole? The contractual expenses of Coal India in 2013-2014 stood at Rs 7812.71 crore, a rise of around 48% from 2010-2011. The annual report of the company points out that the contractual expenses have increased mainly due increased volume of contractual operations.

In simple English, more and more excavation of coal is being outsourced, even in a company like Eastern Coalfields, and this is something that the unions need to be more worried about than the government selling coal blocks to private companies.

It also needs to be pointed out here that the best performing companies of Coal India have huge operating margins. Mahanadi Coalfields earned a total revenue of Rs 12,033 crore during 2013-2014, with an operating profit of Rs 5429.08 crore, which means an operating margin of 45.1%. Interestingly, the company had an operating margin of 51.3% in 2012-2013. Northern Coalfields had an operating margin of of 40.1% in 2013-2014, having fallen from an operating margin of 54.2% that the company had earned in 2012-2013.

These companies should not be subsidiaries of Coal India. They should be allowed to operate on their own. Currently, these companies have a certain "command area” beyond which they cannot operate. Hence, Mahanadi Coalfields cannot operate a coal mine in the command area of Eastern Coalfields, even though the company is more productive at mining coal. These limitations need to be done away with for the simple reason that it will create more competition within the sector.

A recent report in the Business Standard newspaper suggests that the Suresh Prabhu-led ‘Advisory group for integrated development of power, coal and renewable energy’ "has quashed the idea of restructuring Coal India.” Nevertheless, the report does talk about empowering the subsidiaries of Coal India.

"(The) subsidiaries may be given adequate delegation of power, capital expenditure and operational flexibility, along with commensurate accountability, so that their dependence on CIL for decision making does not hamper fulfilment of targets set out for them,” the newsreport in Business Standard pointed out.

This is a good step forward. Ideally, the government should breakdown Coal India and let its subsidiaries operate on their own. Given that it does not want to do that, this is the next best step.

To conclude, India has the third largest coal reserves in the world of 301.56 billion tonnes as per estimates of the Geological Survey of India. But we still import a huge amount of coal.

Coal India produced 323.58 million tonnes of coal in 2004-2005. In 2013-2014, it produced 462.42 million tonnes of coal. The rate of production has increased at an average annual rate of 4.05%. During the same period, the total amount of coal imports has increased from 28.95 million tonnes to 171 million tonnes, at an average annual rate of 21.8%. What this clearly tells us is that India needs more coal. Not more Coal India.

The sooner the government realizes this, the better the energy scenario in the country is likely to be.

Should the government breakup Coal India into smaller companies to create competition? Post your comments or share your views in the Equitymaster Club.

Vivek Kaul is the Editor of the Diary and The Vivek Kaul Letter. Vivek is a writer who has worked at senior positions with the Daily News and Analysis (DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. The latest book in the trilogy Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System was published in March 2015. The books were bestsellers on Amazon. His writing has also appeared in The Times of India, The Hindu, The Hindu Business Line, Business World, Business Today, India Today, Business Standard, Forbes India, Deccan Chronicle, The Asian Age, Mutual Fund Insight, Wealth Insight, Swarajya, Bangalore Mirror among others.

Disclaimer:
The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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6 Responses to "India's biggest industrial strike in 38 years that no one is talking about"

parimal shah

Jan 8, 2015

You forget that there are also mafias and wasted interests and hand-in-gloves attitudes of some people in these organizations.
This IS the right time to privatize and denationalize the coal sector completely.
In fact, through an ordinance, ALL strikes should be banned for next 6 months if we mean business and want to uplift the economy.

Like 

Dinesh Kumar Sharma

Jan 7, 2015

Coal India should be broken into smaller companies to increase competition & their areas of operation should be done away i.e. no command areas should be specified.

Like 

subbaiah

Jan 7, 2015

yes, government need to break-up coal india into smallercompanies for efficient functioning so that strike will not affectproductionand a big labour force is a big problem more times

Like (1)

Anamika Lakhlan

Jan 7, 2015

Govt. should release CIL from being under the authorities of Indian govt. Because they are already outsourcing coal evacation instead of doing it itself. Which will further reduce the pressure of govt. authorities while taking better decisions and improve the productivity of coal mines. In this way the Power and Energy sector of India will also improve.

Like (1)

Mohan Hejamadi

Jan 7, 2015

As seen from the data, Pubic Sector performance is a big drain on the economy. Like banking system is decentralised, subsidiaries of Coal India also should be made autonomous organisations and should compete with each other.
There should be no further recruitments in the units with low per capita output of coal. Trade Unions, in the name of employee protection, should not be allowed to bring down output and cause damage to economic progress of the country. Negative approach by trade unions causes harm in the long run to very people, whose interest they want to protect.

Government should negotiate with unions and make them accept decentralisation, as an urgent requirement. Unions should not play politics.

Like (1)

taffazull

Jan 7, 2015

More important than production figures is the working condition of the workers and effects on the environment in
different mines but your article makes no mention of the same.

Like (1)
  
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