Deloitte recently submitted a draft report to the Coal Ministry has recommended three restructuring options for Coal India Limited (CIL).
The first option, which is also the most plausible one, calls for carrying out internal changes in structure, system and roles to reform the holding company and its subsidiaries. Under this option CIL will continue to operate in its current form but with certain organizational changes. This restructuring alternative focuses more on empowerment in the current as-is structure. In the context of restructuring this will be the most non-disruptive alternative. The current structure has features of centralized control as can be noticed from bulk purchase of heavy equipment, maintenance of executive manpower pool and liaising with central agencies. However, as per the report, it is important to look into certain facets such as market concentration of power and customer orientation and realignment of roles and responsibilities with requisite changes in the Delegation of Powers matrix. In this option, there is no change in the legal holding structure of CIL.
Under the second option, Deloitte has suggested creating Independent Mega Regional Companies out of CIL, while CIL will cease to be the holding company of the coal producing companies. Each redesigned entity will have a production capacity of range between 70-160 MTPA as the initial commencement level and migrate towards 200-300 MT within 5 to 7 years thus creating mega regional CILs. The company formation will be made in such a way that each of them will have sustainable reserves. Once the Mega regional companies are formed, each of the companies can spin off production focused Subsidiaries - each with capacity 30/40 MT. Under this alternative mega regional companies are created, with CIL no longer playing the holding company role for these coal producing companies. This is expected to lead to disruption on account of various manpower aspects.
In this option, the entire legal holding structure of CIL will undergo a change, with CIL no longer remaining as the holding company for the producing subsidiary companies. The seven coal producing subsidiaries will be merged into CIL and then subsequently de-merged into independent entities in selected combination.
Under Option III, Deloitte has recommended phased creation of independent Entities with continuation of holding company during transition. This option calls for a gradual change in structure to create more viable entities in a phased manner. Under the option Entities with production base of 80-100 MTPA may be progressively carved out of existing CIL structure and made fully independent entities. For e.g. MCL, NCL and SECL may be taken up in the first phase. CIL will continue to hold rest of the subsidiaries as the incubator. Under the option provision of further sub division can be based on sustainability potential across all independent companies.
In the third option, MCL, SECL and NCL will be carved out from the purview of CIL and will become independent companies. As per Deloitte, this can be achieved by two alternatives. First is through merger of MCL, SECL and NCL into CIL and subsequent demerger of business of these companies into separate companies. Second alternative is through de-merger of Investment Undertakings of Investment in MCL, SECL and NCL into New Companies (New Cos) and subsequent listing of new companies or/ Exit Offer to public shareholders in new companies.
In its overall evaluation, as per Deloitte, if business transformation measures are implemented, the achievement of CIL objectives is possible through the first option with minimum disruption. If the challenges persist and the objectives are not met, Deloitte has recommended that the third option (through Alternative I) may be considered.
Source: Praveen Patlolla, BHEL Executive, RCPuram.
The first option, which is also the most plausible one, calls for carrying out internal changes in structure, system and roles to reform the holding company and its subsidiaries. Under this option CIL will continue to operate in its current form but with certain organizational changes. This restructuring alternative focuses more on empowerment in the current as-is structure. In the context of restructuring this will be the most non-disruptive alternative. The current structure has features of centralized control as can be noticed from bulk purchase of heavy equipment, maintenance of executive manpower pool and liaising with central agencies. However, as per the report, it is important to look into certain facets such as market concentration of power and customer orientation and realignment of roles and responsibilities with requisite changes in the Delegation of Powers matrix. In this option, there is no change in the legal holding structure of CIL. Under the second option, Deloitte has suggested creating Independent Mega Regional Companies out of CIL, while CIL will cease to be the holding company of the coal producing companies. Each redesigned entity will have a production capacity of range between 70-160 MTPA as the initial commencement level and migrate towards 200-300 MT within 5 to 7 years thus creating mega regional CILs. The company formation will be made in such a way that each of them will have sustainable reserves. Once the Mega regional companies are formed, each of the companies can spin off production focused Subsidiaries - each with capacity 30/40 MT. Under this alternative mega regional companies are created, with CIL no longer playing the holding company role for these coal producing companies. This is expected to lead to disruption on account of various manpower aspects.
In this option, the entire legal holding structure of CIL will undergo a change, with CIL no longer remaining as the holding company for the producing subsidiary companies. The seven coal producing subsidiaries will be merged into CIL and then subsequently de-merged into independent entities in selected combination.
Under Option III, Deloitte has recommended phased creation of independent Entities with continuation of holding company during transition. This option calls for a gradual change in structure to create more viable entities in a phased manner. Under the option Entities with production base of 80-100 MTPA may be progressively carved out of existing CIL structure and made fully independent entities. For e.g. MCL, NCL and SECL may be taken up in the first phase. CIL will continue to hold rest of the subsidiaries as the incubator. Under the option provision of further sub division can be based on sustainability potential across all independent companies.
In the third option, MCL, SECL and NCL will be carved out from the purview of CIL and will become independent companies. As per Deloitte, this can be achieved by two alternatives. First is through merger of MCL, SECL and NCL into CIL and subsequent demerger of business of these companies into separate companies. Second alternative is through de-merger of Investment Undertakings of Investment in MCL, SECL and NCL into New Companies (New Cos) and subsequent listing of new companies or/ Exit Offer to public shareholders in new companies.
In its overall evaluation, as per Deloitte, if business transformation measures are implemented, the achievement of CIL objectives is possible through the first option with minimum disruption. If the challenges persist and the objectives are not met, Deloitte has recommended that the third option (through Alternative I) may be considered.
Source: Praveen Patlolla, BHEL Executive, RCPuram.
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