The Supreme Court ruling on Wednesday quashing the allocation of 214 captive coal blocks allotted since 1993 will come as a big setback for country’s largest power producer NTPC that was looking to reduce dependence on expensive imported coal by operationalising its six captive coal mines allotted during the period reviewed by the apex court. The company had also invested close to Rs 1,800 crore in these blocks, a major portion of which would now remain uncovered.

Apart from Pakri-Barwadih coal block in Jharkhand that was allotted to NTPC in 2004, all other five blocks namely Chatti-Bariatu, Kerandari and Chatti-Bariatu (South) in Jharkhand; the Tallaipali mines in Chhattisgarh and Dulanga mines in Odisha stand cancelled. Together these blocks have geological reserves 3,732 million tonne of coal while mineable reserves is 2,035 mt.

These coal blocks have total production potential of 53 million tonne annually, which would have catered to around 10,840 MW of NTPC?s coal based generation capacity. NTPC planned to get 25% of fuel requirements through own mines over a period of next five to six years.

?The court’s decision is a big setback NTPC like several other power projects that were being developed based on assurance of captive coal supplies. The company will now either have get additional coal linkage from Coal India for new projects or resort to higher imports of expensive coal. It would also have to bid aggressively to win back some of the coal blocks when government decides to auction the mines,? said Debasish Mishra, Senior Director (Consulting), Deloitte.

?It is too premature to give views on court’s decision but even after de-allocation of NTPC’s captive coal blocks, the company’s profitability will not be impacted as fuel cost is a pass through in tariff in almost all its projects. This would mean that higher cost for NTPC by way of coal imports would be borne by its consumers,? said a NTPC official.

The apex court while cancelling captive coal block allocations, granted exemption to four coal blocks, out of 46 suggested, which are government run, non-joint venture projects. Apart from NTPC’s block this includes the Tasra block owned by Steel Authority of India Ltd (SAIL). The other two blocks spared by SC are meant ultra mega power project (Sasan) plants, which were not declared illegal in the an earlier ruling.

With the court’s decision, NTPC would now to quickly operationalise the Pakri-Barwadih block that has missed several deadlines. NTPC was hoping to operationalise its Pakri-Barwadih captive coal block by December 2013 with an annual production capacity of 3 million tonne per annum. However, work at the mining site, which has remained suspended since February 2012 , has failed to start even now on account of law and order issues and payment of compensation for displaced even though both the company and the power ministry has put all its weight behind the project.

The saving grace for NTPC will be the 4 blocks allotted to it last year after finalisation of the auction rules. These blocks have 2 billion tonnes of reserves that could feed 10,000 MW of NTPC capacity once fully operational.

NTPC has been allotted eight captive coal blocks between 2004 and 2007. Two of the allocated blocks Bhahmini and Chichro Pastimal were de-allocated in June 2011 as NTPC could not make any progress on those blocks. Three more blocks were de-allocated during that period because of non-progress but the coal ministry decided to return them to the company later.

But the progress on NTPC mines has remained slow ever since its allotment. Going by the time required to operationalise a coal block (roughly four to five years time), all the NTPC captive mines should have been operational by now.

The company faced problems in other blocks as well. In case of Chatti-Bariatu block where all statutory clearances are in place and mine developer and operator (MDO) has been appointed. In Kerandari, the company was seeking fresh forest clearance after an earlier one lapsed. The Dulanga block fell into ‘no-go, go’ controversy and only now things have started moving forward while for Talaipalli, the appointment for MDO is still awaited as earlier developer Singareni Collieries has walked out. Even in case of Pakri-Barwadih, search for a new MDO is on as earlier appointment was cancelled due to non performance.

NTPC currently needs close to 200 million tonne of coal to run its coal based capacity of about 43,000 MW. About 17 million of this coal is imported at prices that are almost two-and-half times more than average coal price of Rs 1300 tonne that it gets from Coal India Limited.