The Supreme Court?s decision on Wednesday to cancel all 214 captive coal blocks allocated to private companies and public-private joint ventures, though largely expected, has dealt a body blow to the industry, threatened to inflate the cost of power and steel and fan inflation. The ruling, however, gave the government an opportunity to introduce a regime of probity and fairness in disbursal of the vital natural resource.
The companies that are already producing coal from about 40 of these blocks will have to collectively cough up R8,400 crore as penalty on cumulative production of over 280 million tonne till March 31, 2015, when the cancellation would take effect (the hit from the court-imposed penalty of R295/tonne of coal produced is seen to be R2,950 crore for Jindal Steel and Power, whose stock tanked 9.99% on Wednesday and about R300 crore for Hindalco).
Investments have gone to over 120 other blocks and their end use plants as well ? the government puts the total investment thus far in the 218 blocks, the allocation of which since 1993 the court said ?suffered from the vice of arbitrariness and legal flaws?, at R2.86 lakh crore.
Attorney general Mukul Rohatgi told FE that the government is relieved that uncertainty over the issue, first brought out by the Comptroller and Auditor General, have come to an end and the coal mines are reverted back to the central government. ?Now the allotments will be made in a legal and transparent manner and the only mode provided under law is auction. The government will resort to auction for private companies and would allocate without auction to the central government companies. The idea is to get maximum coal output for maximum production of power in the country. The government will start the auction process at the earliest. Giving first-right-of-refusal to the firms having invested in end use plants is still under consideration.?
Law minister Ravi Shankar Prasad said the court ruling prepared the ground for a fresh beginning to be made and for inducing transparency to the allocation process.
With close to R65,000-70,000 crore of loans at stake, the banking sector is keenly watching the efficiency with which the government undertakes the reallocation exercise. Whether projects to which they have large exposures would be retrieved by the existing operators ? for which the government granting them right of first refusal (RoFR) is crucial ? for the lenders which are sure to see some addition to their impaired loans.
?We now look forward for a quick plan of action for ensuring that coal supplies are not disrupted and thereafter a swift and transparent bidding process for reallocation,? SBI Chairperson Arundhati Bhattacharya said. Apart from SBI, Punjab National Bank, ICICI Bank, PFC, REC, IDFC and Axis Bank are also significantly impacted by the SC ruling.
While cancelling allocation of 214 coal blocks, the court, however, let four blocks ? two are run by the government and are not in a joint venture, belonging to NTPC and SAIL (Pakri Barwadih and Tasra, respectively) and two other blocks (Moher and Moher Amroli Extension) allotted to Sasan Power Ultra Mega Power Projects, operated by Reliance Power ?to be held by the existing operators.
A three-judge bench headed by Chief Justice RM Lodha ordered that Coal India take over the projects once they are cancelled and manage them till the re-allocations. The court noted that the Central government was keen to move ahead but some time would be required to manage the emerging situation. ?Similarly, breathing time is also required to be given to the allottees to manage their affairs on the cancellation of the coal blocks..?
The firms concerned will have to pay the penalties ?within a period of three months and in any case on or before December 31, 2014.?
The apex court also clarified that ?coal extracted hereafter till March 31, 2015 will also attract the additional levy of Rs 295 per metric tonne (sic).?
It said the scrutiny by the CBI in respect of the allotment of 12 coal blocks out of 46 identified by the AG (and for that matter against any other allottee) will continue and be taken to its logical conclusion. ?Needless to say, the observations and findings in this order shall have no bearing on the pending investigations,? it added.
India?s coal import bill is likely to go up further by around Rs 18,000 crore due to the cancellation of coal blocks, Macquaire said in a recent report. ?Any news of curtailment of India?s coal production could help revive the weak global sentiment on coal, as some companies might try to build inventory,? it added. India had imported around 168.4 mt of coal worth Rs 95,000 crore last fiscal and this figure is expected to rise in the current year.
Industry did not hide its concerns about the likely fallout of the court decision on the already sombre investment climate.?While the judgement may have been intended to bring in transparency, it will jeopardise the investments made in the sector. The government will need to expedite reallocating the cancelled producing blocks so that production is not affected in the short term,? CII president Ajay Shriram said. Currently, about 42 blocks of these are producing coal to the tune of 53 mt a year and account for 10% of the total coal supplied in the country.
The Supreme Court had on August 25 declared that the entire allocation of coal blocks from 1993 till 2009 was illegal, arbitrary, non-transparent and without application of mind and guidelines.
