Surviving the Indian Coal Business

BRISBANE, Australia - June 30, 2013 - PRLog -- Naveen Jindal, recently ranked as the best CEO in India, is Executive Vice Chairman and Managing Director of Jindal Steel and Power Limited (JSPL).

JSPL is one of India's major steel producers with presence in mining, power generation and infrastructure. It has assets in India and abroad. It is part of the diversified US$15B O P Jindal Group but Mr Jindal calls all of the shots in JSPL.

infrastructure. It has assets in India and abroad. It is part of the diversified US$15B O P Jindal Group but Mr Jindal calls all of the shots in JSPL.

Mr Jindal is widely credited with having transformed JSPL from "a tiny, ailing factory" into an $8b industry, as Business Today said, while picking him as best ranked CEO in 2012. Mr Jindal is also a member of the Congress Party, the current ruling party in the centre, and a prominent elected Member of Parliament.

This week, though, Mr Jindal finds himself in an awkward situation.


The Central Bureau of Investigation (CBI), the country's independent investigative agency, has filed a first information report (FIR) against JSPL for having colluded with the Union Minister of State for Coal at the time, Dasari Narayan Rao, for allocation of a coal block in Jharkand in 2007. CBI has also found that JSPL lied and misrepresented facts on the application the company filed when applying for the coal blocks.

CBI is claiming that there was a clear quid pro quo between JSPL and the minister. The agency is claiming that is has uncovered several unsecured loans that JSPL made to a company owned by the minister, which CBI claims were payments for helping secure the coal blocks.  

The FIR is often the first step before a full blown charge is filed in court and allows the CBI to continue with the investigations. On Tuesday this week, CBI conducted over a dozen raids in Mr Jindal's home, JSPL offices and related companies around the country.

Over the last year, CBI has been conducting a widespread investigation into all of the 250 coal block allocations made between 2004 and 2011. The Supreme Court is closely monitoring the investigations. Of the 250 allocations, 154 were reportedly made during Minister Rao's tenure.

"It seems that Naveen Jindal's companies were biggest beneficiaries during Rao's tenure," a senior CBI officer was quoted in the business daily, the Economic Times on 12 June.    

This isn't the first time that Mr Jindal and JSPL have been in the line of fire.
JSPL was one of the first companies in the spotlight when the coal scandal first broke last year. The scandal erupted after a report charged that the government had caused a loss of $35b by giving away coal blocks to private companies for free between 2004 and 2009.

At that time, JSPL wasn't accused of influencing the coal block allocation process and there was no direct hint of fraud or bribery. It was merely accused of generating excessive profits by using the captive coal block that it was awarded for free to generate cheap electricity which it subsequently sold into the lucrative short-term merchant market.

The company has a 1,000 MW power plant in Chhattisgarh that was commissioned over 2007 and 2008.

The captive coal blocks it was granted for the plant accords it access to 280 Mt of reserves. Mining costs are low, which by the company's own admission is about $12/t, ex-colliery. A 7 km conveyor transports the coal from mine to the plant.

The mine associated with the plant is not the one that CBI is currently investigating. This has only strengthened the perception that JSPL has profited from the coal block allocations in many ways.  

In the nine years between 2003 and 2012, JSPL's revenues grew 20 fold and its net revenues 28 times, at an annual average growth rate of 40% and 45% respectively. Its power plants have been the big margin drivers within the group: in fiscal year 2011 its power business accounted for a quarter of the combined iron, steel and power business and 35% of the consolidated profits before tax.  

However, Mr Jindal and JSPL aren't likely to be easily rattled by an investigation.

Last year, as JSPL was being targeted for profiteering from the coal block allocations, Mr Jindal orchestrated a hidden camera expose against Zee TV. With secret video footage as evidence where TV executives were reportedly demanding advertising from JSPL in return for favourable coverage, Mr Jindal filed a case of blackmailing against Zee TV. Two reporters, a marketing executive and the owner were arrested and charged.

Before Mr Jindal, no one had ever heard or imagined that business would have a hidden camera expose against a news channel. It was always meant to be the other way around.

Mr Jindal said that Zee TV was unfairly targeting him and his company. After the blackmailing case, the spotlight on JSPL faded from the headlines even as the coal scandal continued to unfold.

"The [Indian] coal sector is going through the hottest of fire," Mr Jindal said at the inaugural session of the India International DRI Summit in New Delhi last September (Indian Coal Report, 14 September, Issue 0005).

"JSPL, as a law abiding company, is governed by a strong ethical code of conduct. This is an ongoing CBI investigation into coal block allocation. At this stage of investigation, JSPL is committed to fully cooperate with CBI," JSPL's Head of External Affairs, Manu Kapoor, said coolly in a statement (NDTV, 11 June).

CBI's charge against JSPL this week is far more serious than media reports last year. But will it be enough to shake JSPL or the Indian coal sector?

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