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• Activist UK fund The Children's Investment Fund Management (TCI) has accused the government of India and Coal India's directors of not protecting minority shareholder interests. TCI, which held a 1.01 percent stake in the world's largest coal miner at the end of 2011, said Coal India's directors were acting against interests of stakeholders by blindly accepting government instructions to roll back a recent increase in coal prices.

• In an interview to ET Now, Chris Hohn, CIO, TCI Fund, speaks about the legal action they have initiated against the government on the alleged under-pricing of coal. Excerpts:

• ET Now: You have recently been quite vocal about your issues with the corporate governance at Coal India. Have you received any response from the government on the letter that you wrote?

• Chris Hohn: Absolutely nothing from the government. They publicly say that they have not received the letter, which is ridiculous. It has been sent by email and also by hard copy. The board of the company sent an email response saying that they hear no wrongdoing. So really no serious engagement whatsoever from either the board or government, which is frankly quite insulting. This is the way they treat their large shareholders and investors, they do not view it as relevant or necessary to have any dialogue at all with their investors.

• ET Now: TCI has initiated some legal action of late as well. Can you elaborate on that?

• Chris Hohn: Yes, we began a legal action against the government of India under the Bilateral Investment Treaty between the UK and India. It starts with a six months process before it moves to the courts. The formal process began today with the letter to the Finance Minister, Mr. Mukherjee, where we laid out the abuse of shareholders that we believe is occurring by under-pricing coal at 70% discount to market prices for the benefit of the majority shareholder against the benefit of the minority shareholders, which we deem to be illegal and a theft of the national asset from the Indian people.

• Essentially, the reason we've taken this legal route is it will be far quicker than going through the Indian court system. We also had to threaten the board members of Coal India with potential personal liability if they continue to not execute their fiduciary duty to represent all shareholders and not allow abuse of minority shareholders.

• ET Now: What are the major concerns that you see in Coal India? You have mentioned the 70% discount in coal pricing. Anything else?

• Chris Hohn: The concerns are very serious. Every year, the value of money that is lost to the Indian people is more than $20 billion. Coal India's production is about 450 million tonnes, moving up to 500 million tonnes. And their cash costs are around $20 a tonne, that is what they selling the coal for under the FSAs to the power sector and the market price is $70.

• So on the 400 million tonnes that goes to the power sector, the company is losing $50 a tonne, which is $20 billion a year of lost profits, which should be going to the Indian people. It is a gigantic amount of money that is instead going to benefit a few wealthy politically connected industrialists, who are benefiting from very low coal prices, both directly through very cheap coal and indirectly from very cheap electricity.

• It is no different from the coal blocks scandal, where the coal blocks were sold at vastly below market prices to politically connected industrialists. This case is the same thing. Coal has been given away at very discounted prices.

• ET Now: Coal pricing issues with Coal India have been there since pre-IPO times. Any reason why TCI is suddenly raising the issues at this point in time?

• Chris Hohn: Yes, there is. Right at the beginning of the IPO, the company said on their road show, including government ministers who came along in the road show and the chairman of the company, that coal was deregulated in India and that the company was going to normalising the pricing. They started to take some actions towards that and at the start of the year, they announced the move to an international standard of coal pricing that would have led to a price increase.

• The company was starting to do the right things but what happened was other people in the government, under pressure from wealthy industrialists, actually put pressure on the government to stop this.

• Since it is illegal for the government to directly instruct a company, even if they are a large shareholder, the normal way the government put pressure is they verbally tell the company. But in this case, they wrote a letter, a formal letter from the secretary in the coal ministry to the company instructing them to roll back the price increase. We asked the company for a copy of the letter but they refused to give it to us. We went under RTI to the Kolkata courts and obtained the letter, which is on our website.

• What we have been saying is that without any doubt, the government is directly instructing the company to keep the prices at a 70% discount to market prices for the benefit of the privileged, politically connected wealthy industrialists.

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