To prevent ownership change in allotted blocks, CoalMin draws up restrictions

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The UPA is accused of giving preferential allotment to rag-tag firms despite their lack of experience in power, steel and cement. The UPA is accused of giving preferential allotment to rag-tag firms despite their lack of experience in power, steel and cement.
SummaryThe coal ministry is finalising restrictions on change in ownership of coal blocks or linkages.

The coal ministry is finalising restrictions on change in ownership of coal blocks or linkages to prevent firms that won licences during the coal allocation scam from selling off company or outsourcing coal to third parties at a premium.

Broad guidelines proposed by the coal ministry on January 16 say that change of name would be permitted provided the project for which coal linkage was given, its location and the conditions in the letter of assurance (LoA), remain unchanged.

The ministry’s guidelines was sent a day after the Supreme Court questioned the Centre over the functioning of the screening committee for allocation of blocks in which some private companies were preferred despite not figuring in the recommendations by competent authorities.

The UPA is accused of giving preferential allotment to rag-tag firms despite their lack of experience in power, steel and cement — three sectors for which captive coal blocks are allowed. These firms make gains by diluting equity or selling the company or outsourcing operation at a premium, as in the case of 2G spectrum.

The coal ministry has admitted the possibility of license trading as the LoAs were being perceived as “premium commodity” since coal linkages have become “more attractive and difficult to get”.

“Therefore, concerns have been expressed about the possibilities that the linkage obtained by a developer is traded in the market at a premium in the guise of change of name/management structure of the developer company.”

To avert such profit booking, the proposed guidelines state that linkage or LoA holder would have to give “prior intimation” to the ministry and the coal PSU of any change in its shareholding that affects the ownership or changes the present owner’s holding. It would also have to convey any change in the objectives of business which could significantly impact the future of the plant for which the linkage was given.

The norms forbid the promoters from divesting a majority shareholding in the firm unless they achieve a “significant level of investment” in the project. “Divestment of majority shareholding may however be taken into account after the project has been commissioned,” says the note.

The guidelines have been sent to the members of Standing Linkage Committee (Long Term) for comments “at the earliest”.

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