Govt urges SC not to cancel 46 coal blocks
Sep 01 2014 , New Delhi/Mumbai
Offers to re-auction 176 idle blocks, court verdict on Sept 9
As the apex court reserved its judgement on de-allocation to September 9, coal mining companies like Jindal Steel, Hindalco and Sterlite will be on tenterhooks for another week. However, they can take comfort from the fact that the government has sought exemption for around 46 mines that are in various stages of operations.
The government's stance, however, seems to have sealed the fate of 172 coal blocks, as the companies that currently control them will have to surrender them in case the Supreme Court directs de-allocation. This is what happened with telecom players in the case of 2G spectrum.
But the government has declared itself not to be in favour of surrender by companies owning 46 other blocks that are either operative or nearing operation. These blocks are set to produce 53 million metric tonnes coal by March 31, 2015.
The nature of Rohatgi's submission has revealed the Narendra Modi government’s stand on allocation of 218 coal blocks termed illegal by the apex court last Monday.
Rohatgi pleaded that the court refrain from referring the issue to a committee, as it would result in inordinate delay in coal auctions. The attorney general reportedly told the court that the government had no objection to cancellation but an early decision would be welcome.
This shows the government understands the dilemma of mining companies that have invested thousands of crores on the establishment of end-use infrastructure, such as power and steel plants. De-allocation would make them unviable and non-profitable assets for lenders. In total, bankers have around Rs 5 lakh crore exposure to the power sector alone, most of that funding being given in the last 6-8 years.
Jindal Steel and Power has invested close to Rs 20,000 crore on the first phase of the steel plant and plate mill capacity of 2.5 mtpa and a power plant of 810 mw along with the development of the Utkal I mine in Angul Odisha. Another 15,000 crore on second phase capacity building of 6.5 mptpa is on the anvil. Similarly, Sterlite Industries has fully commissioned its 2,400 mw plant at Bhurkamunda near Jharsuguda at an investment of around Rs 12,500 crore. People close to the development told FC that if the decision to exempt operational mines from de-allocation is accepted by the apex court, it would be an extremely positive step. But still there is no clarity if these miners would be penalised and what would be the basis for such penalty.
Attorney general Mukul Rohatgi submitted before a bench headed by chief justice RM Lodha, “Government stands by the August 25 judgement. We want re-auction of 218 coal blocks. We will be happy if we save some 40 of them which are functional or operational and ready for end-use plant.”
The attorney general said the 40 mines for which requisite clearances have been on board and are operational must not be tarred with the same brush and can be exempted from cancellation and re-auction, provided they meet the condition of compensating the loss of Rs 295 per tonne caused to the government and enter into a power purchase agreement at Rs 95 per tonne to make up the loss. “There was a need for saving 40 coal blocks from guillotine of cancellation as uncertainty of coal availability would affect the plants, when the country is facing acute shortage of power supply,” said Rohatgi.
Kumar Ashutosh, senior analyst with Karvy Stock Brokers said the possible cancellation of allotted coal blocks to these projects may adversely impact the chances of recovery of these loans. If these projects fail to take off, banks will have to either write off or classify them as NPAs. Even if the court asks the government to re-allocate these coal blocks, it would mean substantial delays in projects and would result in slippages and restructuring of loan to these projects.
“Hence, we expect part of this exposure to turn into NPAs over the next 18 months as many of these project will become unviable. We maintain our cautious view on the sector, specially on the public sector banks, which has relatively higher exposure to the sector," said Ashutosh.
Dipesh Dipu, founding MD of Genessi Consultancy, said it is going to be a complex decision for the apex court since there is no guideline for penalties or exemptions for few operational mines that also acquired mines through an arbitrary or illegal means. The logic for exemption for mines at various stages of operations can be used by other miners whose plants are about to be commissioned. He terms the decision as shock therapy for the industry as they would be cautious from next time. According to industry estimates, out of 218 blocks that have been termed illegal, around 12 blocks have been allocated to UMPPs, two to CIL, 105 to private sector as captive mines and rest to state governments.
Out of 105 allocated, 42 blocks are operational and another four are in different stages of operations. These constitute around 53 million tonne or 10 per cent of total projected output from all coal blocks, which totals 550 million tonnes per annum. Also, these 42 coal blocks would support 26,000 mw of power and 12 mtpa of steel capacity.
Besides, the industry officials pointed that around 50 per cent of the 63 non-operational blocks are awaiting mining leases to be signed with respective state governments but are stuck on account of bureaucratic hurdles. It is also alleged that foreign direct investments worth Rs 13,000 crore in steel such as in Monnet Ispat and others and another Rs 5,000 crore in power sector would be directly impacted. Last week, while terming the method of allotment of coal blocks between 1993 and 2011 illegal, the apex court observed, “All allocations were done in an illegal manner and it suffers from vice of arbitrariness.”
The NDA government’s stand on coal blocks seem to be a shot in the arm for serious power, steel and fertiliser companies that have made huge investments for captive consumption of coal.
A bench headed by chief justice R M Lodha had examined allegations about irregularities in the allocation of around 194 coal blocks without following proper guidelines. The bench said that the allocation by the screening committee was not fair and transparent, following a report filed by CBI. Coal blocks were allotted in Jharkhand, Chhattisgarh, Maharashtra, West Bengal, Odisha and Madhya Pradesh to private firms between 2004 and March 2011.
The Supreme Court had allowed the coal block allocations to UMPPs to continue but disallowed them from using the coal for any purpose — read commercial exploitation — other than captive consumption. This directive will halt plans of the Anil Ambani-led Reliance Power from selling coal in the open market. Tata Power too would not be able to divert coal for use by other group projects if it has any plans of doing so.
The bench headed by chief justice Lodha, justices M B Lokur and Kurian Joseph has been monitoring the CBI probe into the scam and special court has been set up to exclusively deal with the prosecution of cases that involves politicians and companies as accused.
The apex court on September 14, 2012 had for the first time issued notice on the PIL filed by an advocate M L Sharma, later joined by others. During the hearing, it sought the details of guidelines framed by the Centre for allocation of coal blocks.
When the petition was filed in 2012, it was alleged that the CAG has estimated a huge loss of about Rs 1.64 lakh crore to the country in the allocation of coal blocks.
The apex court then ordered the setting up of a screening committee to consider proposals from the private sector for captive mining.