Coalgate verdict: Body blow, say affected firms

Many top corporate groups hit hard, in penalties and sunk investments, beside loss of future revenue

The Supreme Court’s order to cancel all the 214 captive coal blocks allotments since 1993 is being described by the companies in question as a body blow.

Their chiefs say it’s now for the central government to set the house in order.

“I am sure the government has a fallback plan to tackle the issue,” said Kumar Mangalam Birla, chairman of Hindalco Industries, on Wednesday. The SC has cancelled its coal block allotments at Talabira in Odisha and Mahan in Madhya Pradesh.

The Mahan mine had been allocated to a joint venture with the Essar group. The latter had already set up a power project in Mahan but could not mine coal due to an ongoing agitation by local citizens.

“After the SC order, it’s Coal India and the government which will be running the sector. It will be a monopoly and all the competition is gone,” said the chief executive officer (CEO) of a large corporate group, asking not to be named. “We just hope the government will now come up with the right policies, so that coal blocks can be auctioned fast and allocated in a transparent process, and return the money already spent by these companies for development of the mines.”

The SC had earlier questioned the process and legality of the allotment and on Wednesday cancelled the allotments made to all companies since 1993, barring the Sasan block allotted to Reliance Power and those given to state sector units.

 

Tata Power said it had two coal blocks jointly allocated to it, along with other co-allocatees. “We understand the Supreme Court by its order has cancelled all but four blocks. Tata Power would study the order and discuss the same with its Board before having a view point. Tata Power would look forward to opportunities of having a new, legally enforceable framework by which coal blocks could be awarded, perhaps at an early time,” stated the company.

Confederation of Indian Industry (CII) said the judgment will hit the economy hard. Ajay Shriram, president, CII, said, “While the judgment may have been intended to bring in transparency, it will jeopardise the investments made in the sector. It will raise questions on the sanctity of government policies impacting the investment climate. The government will need to expedite reallocating the cancelled producing blocks so that production is not affected in the short term.” It would also be important for the government to put in place a new transparent mechanism for allocation of coal blocks at the earliest, he said.

Analysts say the order is a big negative for GVK, the Essar group, Hindalco, Sesa Sterlite, Jindal Steel & Power, Jaypee and Adani Power. These were among the big ones which had set up new power, steel and aluminium plants based on coal from these mines. “This is the worst possible news for (them) when things were just looking up,” said the finance head of a large company, asking not to be named.

Excluding the Ultra Mega Power Projects and blocks allocated to the central sector, HDFC Securities has estimated nearly 17 Gigawatts (1,000 Mw is a Gw) of power projects to be impacted. “We have no option but to work on a Plan-B,” said a top Hindalco official. “We were gearing up for this bad news for quite some time.”

Apart from cancellation of allotment, the companies will have to pay a hefty penalty on the production till date, at Rs 295 a tonne. The fine itself is estimated to cost Jindal Steel & Power up to Rs 3,000 crore, said an analyst. This fine has to be paid by all companies before December 31.

Analysts say following the cancellations, the country’s import bill would jump by $3 billion (Rs 18,000 crore) as companies will source coal from across the world.

Apart from loss of profit and revenue, and paying a steep fine, many companies are also facing the heat from the cases filed by the Central Bureau of Investigation (CBI) in a Delhi court, which is looking into the criminality angle in the allocation of blocks. CBI is looking for a trail of misrepresentation of facts or payment of bribery to get the allocations.

Greenpeace, the environment group which was also fighting against the allocation of Mahan to Essar and Hindalco, termed the SC decision a “landmark” victory for the environment and the people. “Today’s ruling calls the bluff on coal’s dirty secret and should signal the end of complicity between the state and corporate players. It’s a strong message from the highest court in the country to the government and industry, that the laws of the land cannot be circumvented and disregarded,” said Vinuta Gopal of Greenpeace India.