Coal de-allocation: India risks power cuts, USD 66 bn investments

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SME Times News Bureau | 25 Sep, 2014
India could face power disruptions even as Rs.4 trillion (USD 66 billion) worth of investments hang in balance with the Supreme Court wednesday cancelling 214 coal blocks alloted since 1993 which it had declared illegal, stakeholders said.

They, howvever, hope the verdict will end uncertainties in the economy and the government will put in place a prudent policy environment to usher in transparency in the system.

State Bank of India chairperson, Arundhati Bhattacharya said the bank looks forward to a “swift and transparent” bidding process of the coal blocks cancelled by the Supreme Court.

“We believe that uncertainty is possibly the worst enemy of growth. We are glad that this is over with the SC verdict on coal blocks allocation,” Bhattacharya said ni a statement.

“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,” the SBI chairperson added.

The court has also said that companies that have been mining coal have to pay for all the coal that they have mined or used until 31 March 2015.

Jayaswal Neco, one of the firms affected by the judgement, said the company had long mined the coal from the mine allocated to it and had already passed on the benefits to the consumers.

Giving an estimate of the economic impact of the deallocations, Naveen Jindal, chairman of another affected company Jindal Steel and Power (JSPL) said earlier this month that about Rs.400,000 crore of investment made to develop coal mines would be in jeopardy if the blocks were to be de-allocated.

"If we term the government's coal allocation policy as faulty and illegal, then the effort put in by the investors to revive the discarded mines of Coal India, the entire Rs.4 lakh crore investment would be in jeopardy," Jindal had said.

Describing the deallocations of so many blocks as "harsh", industry chamber Assocham said:"Our main concern is on the kind of negative impact on the economy which has just been showing signs of recovery after over two years of slowdown." ”

"Being largely dependent on the thermal power, it is the coal which fires the economic growth, which will be halted, besides, the dependence on coal imports will increase," said Assocham president Rana Kapoor.

coal based power constitues 60 percent of India's installed capacity, followed by hydroelectric generation at 16 percent.

Former coal secretary P.C Parakh said the impact on the economy would depend on the speed of the government reaction to the verdict.

"Impact depends on how quickly the government responds to the Supreme Court verdict and how the procedure for reallocation of coal block is followed," Parakh said.

The Confederation of Indian Industry (CII) said the court verdict is likely to adversely impact domestic coal supplies and will erode investor confidence.

"The court'’ decision has created uncertainty and is likely to impact key sectors including power, steel and mining. In particular, given that the power sector is the largest consumer of coal in India this development is likely to exacerbate the shortage of fuel for the power sector," CII said in a statement here.

Acute fuel shortages are already impacting the power sector and currently close to 80 million tonnes of coal are being imported to meet demand.

Another sector that will be impacted by this ruling is the financial sector as banks account for over 60 percent of the overall investments in these blocks, CII said.

"CII would like to reiterate that while it respects the judgement of the apex court decisions, taken retrospectively could impede future investment flow into the country," it added.