Yesterday, Greenpeace and the Institute for Energy Economics and Financial Analysis (IEEFA) released a report that reveals that Coal India, the world’s largest coal miner, may be overstating its coal reserves by an estimated 3.5 billion metric tons. As the company and its bankers prepare a new offering of Coal India shares to the investing public, this revelation adds to concerns Greenpeace, RAN, and others have raised about Coal India’s egregious environmental, human rights, and legal compliance record.
Prior to Coal India’s 2010 initial public offering, the company told investors that it had 21.7 billion metric tons of extractable coal reserves. But an internal study by the company’s exploration arm estimated that it had reserves of only 18.2 billion tons as of 2011. If this internal figure turns out to be correct, the 16% difference between Coal India’s official and internal reserve figures would have reduced Coal India’s valuation by approximately $4.25 billion as of April 2011. However, the company has not disclosed or accounted for this discrepancy to shareholders, India’s financial regulators, or stock exchanges.
The Greenpeace/IEEFA report notes that Coal India’s reserves reporting discrepancy calls into question the company’s ability to meet its aggressive 8% annual growth target. Furthermore, if the company somehow achieves its annual production goals (which it failed to meet from 2010-2012), it would be on track to exhaust its reserves by 2030, leaving India’s current and planned coal-fired power plants without adequate fuel supplies.
When considered along with evidence of Coal India’s widespread violations of India’s environmental laws and severe corruption problems, the company’s reserves reporting raises a deeper concern for investors: If company executives are flouting the law and stealing from their employer, why would you expect them to look out for the best interests of shareholders?
In combination, Coal India’s environmental, human rights, legal, and reporting messes leave the company’s bankers with a problem. With their reputations and client relationships on the line, how do Bank of America, Credit Suisse, Deutsche Bank, and Goldman Sachs plan to sell the company’s share offering to investors? It would be bad enough for their sales pitch to skip over evidence that the company’s mines have forcibly evicted vulnerable forest communities, destroyed endangered species habitat, and used child labor. But investors are unlikely to forget the banks that sold them stock in a mining company that turned out to be missing 3.5 billion tons of coal.