The situation is sort of unprecedented for the sector as no company has sought such an approval so far.
The Shivraj Singh Chouhan government in Madhya Pradesh had written to the Union government in March to allow mortgaging of the blocks linked to R-Powers 3,960 Ultra Mega Power Project at Sasan in favour of its lenders which include banks from the United States, China and Singapore.
R-Power has sought to assign the mining leases to the consortium by invoking Rule 37 of Mineral Concession Rules (MCR), 1960 which the coal ministry says specifies that the lessee of a coal block shall not, without the consent of the state government and previous consent of the central government assign, sublet, mortgage, or in any other manner, transfer the mining lease, or any right, title or interest therein.
When contacted, Reliance Power spokesperson said, Its a standard condition of compliance by all the lenders.
Simultaneously, the rules also mention that where the mortgagee is an institution, a bank or a corporation as specified in Schedule V, it is not mandatory for the lessee to obtain any such consent, the coal ministry has told the department of financial services (DFS) of the finance ministry in a letter on June 10.
It is this ambiguity in the MCR which has compelled the coal ministry to seek the finance ministrys views. The DFS is requested to furnish their comments on the references of the Madhya Pradesh government specifically with regard to the inclusion of banks/financial institutions involved in the proposal which are not part of Schedule V of MCR... the coal ministry told the DFS in its letter.
Mortgaging of assets is, however, allowed in other sectors like telecom. The Reserve Bank of India has recently permitted banks to take spectrum as mortgage. Similar rules are now expected to be written in for other sectors where there is a deployment of natural resources.
The Sasan project achieved financial closure in 2009. The lending by the consortium of banks was done on a project finance basis and with an estimated project cost of around Rs 20,000 crore with a 75:25 debt-equity ratio.
The company is slated to produce around 20 million tonne coal annually from Moher and Moher Amlori coal mines to run its Sasan plant.