<div>For a coal producer trying to navigate India's complex federal structure, size matters. And the smaller the better.<br /><br />That harsh lesson was learnt by S. Narsing Rao, the outgoing chairman and managing director of Coal India Ltd, the world's biggest coal miner. While Rao has been at the helm in the past two years, Coal India has missed its annual output targets.<br /><br />But in the six years before that, Rao led Singareni Collieries and the company beat output targets every year. Even though it is India's second-biggest coal producer, it is small compared with Coal India. In the fiscal year ended March 31, it produced a tenth of Coal India's 462 million tonnes.<br /><br />Some experts say India needs more small and nimbler companies like Singareni, rather than monoliths like Coal India, to narrow its crippling supply shortfall - forecast to more than double to 350 million tonnes by 2016-17.<br /><br />The inability of Coal India - accounting for 80 per cent of the country's coal output - to raise production fast enough has made India the world's third-largest coal importer despite sitting on the fifth-largest reserves.<br /><br />That is forcing new Prime Minister Narendra Modi to explore drastic remedies like a break-up of the company, sources say.<br /><br />The key reason Singareni can meet its targets lies in the ownership of the two companies, Rao says.<br /><br />While Coal India is majority owned by the central government, Singareni is controlled by Telangana. Since the central government can do little without the consent of the states, it is easier for the likes of Singareni to acquire land for mining, access infrastructure such as railways and get environment approvals.<br /><br />Land acquisition and access to railways are the two most important factors for boosting coal production.<br /><br />"Coal India, being a federal company, is somehow not proving to be very successful in influencing state governments and district administrations to positively respond to our requests. That is the challenge," Rao told Reuters.<br /><br />"Singareni being a state government company, it is much easier to do that."<br /><br />State resistance has, for instance, hampered Coal India's plans to build railway lines connecting remote mines. Rao has said previously that better transport connections could raise the company's output by 300 million tonnes per year.<br /><br />Rao has quit Coal India to join the government of Telangana, a new state formed this month through the division of Andhra Pradesh.<br /><br />Coal India's 370,000 highly unionised workforce has resisted attempts to introduce new technologies, fearing job losses.<br /><br />In contrast, Singareni, with a workforce of around 62,800, is using state-of-the-art technologies, having pioneered mechanisation of coal mines in India way back in 1937 using coal-drilling machines.<br /><br />Coal India's productivity, measured in output-per-man-shift, was 4.92 tonnes in 2011/12, below a target of 5.54, according to the last available Planning Commission figures. For Singareni, which digs out a higher percentage from underground mines that are harder to operate than open-cast mines, productivity was 3.80 tonnes, above a target of 2.67.<br /><br />Singareni Chairman Sutirtha Bhattacharya said Telangana has promised the company full co-operation, which would spur it to a record production of 54.5 million tonnes this fiscal year from about 50 million in the previous year to end-March. A tenth of India's coal reserves of about 293.5 billion tonnes is estimated to be in Telangana.<br /><br />Should Modi decide to open up the nationalised coal sector, Singareni-like small companies could be a better fit for local as well as foreign investors. President Pranab Mukherjee said last week that reforms in the coal sector will be pursued with urgency to attract private investment.<br /><br />Reuters reported last month the government was exploring spinning off some of the eight units of Coal India into independent firms, making respective state governments equity holders to help speed up land acquisition.<br /><br />A smaller firm has some advantages, says Dipesh Dipu, partner with Jenissi Management Consultants.<br /><br />"You have better control of operations," Dipu said.<br /><br /><strong>Hurdles To Growth</strong><br />Coal India was formed in November 1975 as a holding company. It operates mines in Jharkhand, Odisha, Chattisgarh and West Bengal states. The company's sales by volume are almost twice those of industry No.2 Peabody.<br /><br />Fast-tracking growth at a company of that size won't be easy.<br /><br />Credit Suisse analysts wrote in a note that despite the resounding election victory of Modi's Bharatiya Janata Party (BJP), governments in Odisha, West Bengal and Jharkhand are "likely to stay non-BJP for several years, potentially hindering centre-state co-operation".<br /><br />And unions representing Coal India's workers plan to oppose any move to split the company or divest stakes as many jobs could be on the line, said D.D. Ramanandan, vice president of the All India Coal Workers Federation.<br /><br />"We know for sure this government will try hard to restructure Coal India," Ramanandan said. "But once we come out on the streets, neither Modi nor BJP will be able to save the country from falling into darkness."<br /><br />(Reuters)</div>
