India's largest coal handling agency - Mjunction

Expert Speak
The menace of over-reporting in
coal companies
J.P. Panda
The author is the former CGM Coal India and
former COO Aditya Birla group and MJSJ Coal
Ltd. Presently, he is the Managing Director of Priya
Mining Consultancy and Services Pvt Ltd. and the Chairman
of Indian Mine Managers’ Association (Kalinga Branch)
A recent report about the Central Bureau of Investigation
(CBI) measuring coal stocks in different subsidiaries is a
stark reminder of the sad story of over-reporting currently
prevalent in the coal industry. Sadly, this problem has not
been addressed by our country’s coal behemoth, Coal India
Ltd (CIL), in the right perspective.
The stock reply to this issue is that measurement teams
from outside the company are sent to conduct the stock
measurement and the problem is confined to a select few,
against whom disciplinary action is invariably taken.
What makes the entire situation worse is that even the
measurement teams were under the CBI net, in case of one
of the subsidiaries.
In the past, there have been instances of charge sheeting
and imprisonment of CGMs of coal companies by the CBI
for over reporting. The charges usually centre around the
fact that the coal stock has been sold illegally for personal
benefit.
Why and what of over-reporting
The main reason for over-reporting relates to the personal
ambition of many executives who tend to inflate the production
figures, in a way somewhat similar to the method adopted by
SATYAM which inflated its profit figures.
These executives, in an effort to show their efficieny and
quickly climb up the corporate ladder, often simply tend to
over-report, that is, inflate the production figures and thereby
show that the overall cost has also come down. It is obvious
that for the inflated or imaginary production figures, no
revenue expenditure is incurred and therefore, the cost will
obviously be less.
Coal company officials and particularly the top brass,
are extremely concerned about this problem which has
strict legal implications.
Yet, instead of following a scientific approach, most
coal companies follow the principle of Inspector-Raj which
centres on sending a coal measurement team to nab the
culprit, often forgetting that the investigation team might
themselves be lured by the prospect of big money.
Over-reporting leads to a situation where the coal
production in the month of March goes up exponentially and
come April, it comes down very sharply, to 50 percent or even
less.
From this, one can safely conclude that other set of
machineries being the same, the sudden down slide in
production simply means that under-reporting is taking place
to make up for the over-reported production in the month of
March.
Possible solutions
There is not one, but definitely a number of solutions in sight,
if Coal India and the other coal companies are really willing
about it. It is worth noting that this menace is well known to
the top brass of the companies, including the ministry, and yet
it is not getting solved even though the methods are indeed
very simple. There is actually no need to send hundreds of
measurement teams to check this menace.
Most of the production from Coal India is from opencast
mines and it is in this category that over-reporting is most
prevalent. In order to stop this menace, there are several
solutions as listed below:
1. The coal companies can attempt to change the entire
reporting system. The entire dispatch of coal should be
treated as production and the reporting system can be
changed accordingly. Once dispatch is done, there cannot
be any doubt about the authenticity of the coal stock.
2. The stock should arrive from the in-situ measurements
taken by modern survey instruments, as tentative stock for
the purpose of financial accounting.
3. All opencast projects are being surveyed every month and
every quarter. The coal and overburden removed every
month can be measured scientifically from the plan and
sections made every month by modern survey instruments
and software that will calculate coal and OB extracted.
This will then be taken as tentative stock which will be the
actual in-situ stock of coal (bench coal) removed minus the
actual dispatch.
Since every month the survey is done and plotted in the
computer, the record will be available both in the computer
COAL INSIGHTS 58 October 2010