All coal allocations since 1993 illegal: Supreme Court

Written by fe Bureau | New Delhi | Updated: Aug 26 2014, 16:34pm hrs
CoalSupreme Court on Monday declared all coal mines allocated since 1993 illegal. (AP)
In a move that could either derail large investments in steel and power or help clean up the process of allocation of natural resources, the Supreme Court on Monday declared as illegal all coal mines allocated since 1993, including those allocated to central and state PSUs.

While the allotments have been declared illegal, unlike in the 2G spectrum case, the allotments have not been cancelled; a decision on this will be taken next week, possibly even on a case-by-case basis. The bench was headed by Chief Justice of India RM Lodha.

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Stocks of several steel companies tanked as industry estimates peg the investments riding on these captive mine allocations at anywhere between R80,000 crore and R1 lakh crore. Interestingly, while the CBI said it was going to close the case involving the Aditya Birla Group due to lack of evidence of criminality,

the SC declared the allotment illegal.

Former coal secretary PC Parakh said en masse cancellation of licences would be disastrous for the economy, and the Supreme Court would probably come up with a mechanism to deal with de-allocation of coal blocks. While coal and power minister Piyush Goyal said he was happy the Supreme Court had announced part of the judgment in the coal sector and that clarity in law and policy was good for investors and the sector, finance minister Arun Jaitley said the government may appeal to the Supreme Court to hasten the process of re-allocation.

With the Supreme Court declaring all coal mines allocated since 1993 illegal, the policy on most major minerals is now in a limbo. While the government will have to come out with a policy to re-allocate mines whose licenses are cancelled, and one for new mines, iron ore production has fallen from 218 million tonnes to in FY10 to 135 million tonnes in each of the last two financial years, a result of en masse cancellation of licences in states like Odisha, Goa and Karnataka. While captive iron ore mines of firms like SAIL and Tata Steel are now on their way to getting regularised, the Odisha government has levied fines of R58,000 crore on them.

The SC bench observed that there was no objective criteria, nay, no criteria for evaluation of comparative merits. The approach had been ad hoc and casual. There was no fair and transparent procedure, all resulting in unfair distribution of the national wealth. Common good and public interest have, thus, suffered heavily. Hence, the allocation of coal blocks based on the recommendations made in all the 36 meetings of the screening committee is illegal. It observed that the allocation of blocks through government dispensation route, however laudable the object may be, also is illegal since it is impermissible as per the Coal Mines Nationalisation Act.

The courts order exempted 12 coal blocks allocated to companies promoting ultra mega power projects since these were awarded on the basis of competitive bids.

However, the Supreme Court directed that coal produced from the blocks have to be used for captive purpose and cannot be diverted for commercial use.

In some cases the government has allowed diversion of coal from UMPP to other end uses, ie, for commercial exploitation. Having regard to this, it is directed that the coal blocks allocated for UMPP would only be used for UMPP and no diversion of coal for commercial exploitation would be permitted, the bench with Chief Justice RM Lodha, justices Madan B Lokur and Kurian Joseph said.

The Supreme Courts observations on diversion of coal will affect Reliance Power. R-Power had been allocated a coal block to feed fuel to its Tilaiya UMPP in Jharkhand, and since the company had surplus coal from the block, the government had agreed to its proposal to divert some of this coal for its Chitrangi power project in Madhya Pradesh, which is not an UMPP.

Between 1993 and 2010,

a total on 218 blocks were allocated. Excluding the 12 UMPP blocks, the number would be 206 but since 25 of the blocks were either cancelled or surrendered, 181 blocks are under threat of cancellation.

The illegal allocation of coal blocks had rocked the UPA II government when

in March 2012 the leaked draft report of the Comptroller and Auditor General

had pegged the presumptive loss to the exchequer at R10.70 lakh crore. However, in its report tabled in the Parliament in August that year, the sum was lower at R1.86 lakh crore.

Although the government contested the Comptroller and Auditor Generals charges, it constituted an inter-ministerial panel to gauge the progress made by parties in developing the blocks.

The panel had recommended that 61 blocks be cancelled as they had failed to develop the blocks by seeking environmental clearances.

Some were given deadlines to get the approval if they wanted to escape cancellation.

However, with the SC's

order, even blocks like Mahan, jointly held by Hindalco and Essar Power and which have got all the approvals, face the threat of cancellation since the process of allocation itself has been termed illegal.

The two parties have together invested around R500 crore in the block.

The Mahan block is estimated to have reserves of 150 million tonnes and will feed Essar Energys 1,200 MW power plant, the first phase of which is up and running and a Hindalco power unit that will supply its aluminium smelter.

The coal block is expected to yield 8 million tonnes of coal annually and the output will be shared by Hindalco and Essar in the ratio of 40:60.