Time to clean up the coal sector

Written by Indu Bhan | Indu Bhan | Updated: Aug 27 2014, 07:24am hrs
The Supreme Court ruling of declaring all coal mines allocated between 1993 and 2009 as illegal could be a double-edged sword for the industry. It can either derail large investments and hurt prospects for economic recovery in sectors such as steel and power, which account for 75% of allocations, or help clean up the process of allocation of natural resources.

Banks are worried due to uncertainty created by the decision. They have an exposure of more than R5 lakh crore to the sector, critical for revival of the economy, which has slipped to below 5% growth in 2012-13 and 2013-14. Even steel companies estimates peg the investments riding on these captive mine allocations at anywhere between R80,000 crore and R1 lakh crore. The steel sector will have to tap other sources of coal which may not come cheap and could impact profitability if the apex court decides to cancel the allotments.

Of the 218 coal blocks, the power sector accounted for 95 blocks while steel companies got 69 blocks.

The NDA government, however, seems to be upbeat on the decision as it feels that clarity in law and policy was good for investors and is ready to hasten the process of reallocation of national wealth.

Says senior counsel Harish Salve: The judgement is an eye-opener as to what goes on in the country under the name of socialism. There is no loss to the government but the decisions by the screening committee are totally arbitrary. No rules have been followed.

Thus, a better approach that addresses criminality while being sensitive to economic interests could be proposed in cancellation and reallocation of mines as iron-ore production has already fallen from 218 million tonnes in FY10 to 135 million tonnes in each of the last two financial years due to en masse cancellation of licences in states such as Odisha, Goa and Karnataka by the apex court.

Power companies want the government to be considerate while making reallotments where heavy investments have been made by them. The Supreme Court can order cancellation of coal allocation for mines where no significant investments have been made, they added.

According to an April 2013 Parliamentary Standing Committee report on coal, only 30 out of 195 captive coal blocks have started production. So, a majority of captive mining companies are yet to come up as they are still struggling with conducting due diligence, getting clearances, etc. Either their blocks can be deallocated and given for commercial mining or they can be given the choice of participating in the auction process.

However, legal experts say that there is not much to panic as they are hopeful that the top court will definitely look for solutions rather than have blanket cancellations to ensure any further damage to Indias growth revival. They feel that the Supreme Court has taken a sensible decision not to cancel it unlike the 2G spectrum judgment that took a heavy toll on the telecom sector.

Jurists are speculating that the top court may decide to maintain an allotment where it makes no economic sense to cancel it, but only after imposing heavy penalty. Analysts say that it is still possible for coal mining companies to get their respective coal mines after paying a price for them or take part in an auction depending on the apex courts directions next week.

All eyes are now fixed on the Supreme Court, which would decide on the fate of allotments on September 1. Whatever the case may be, one thing is for sure that the verdict has definitely given a rare chance to set these things right and would bring in much-need transparency in auctioning process of scare natural resources, a rare commodity nowadays.