Coal Block De-allocation: What does Supreme Court’s Verdict means?

On 25 Aug’14, 218 coal blocks, which were allocated under the Screening Committee and government dispensation route since 1993, were stated illegal and arbitrary by the Supreme Court.

The Supreme Court has announced its verdict on de-allocation of coal blocks today. Following are the outcomes.

1. Cancelled 214 coal blocks issued since 1993; JSPL most impacted
2. 6-month breathing time for winding up operations is given to companies, whose coal blocks have been cancelled
3. Four government owned non-JV blocks were safe i.e. PSU-SAIL, NTPC JV mine and two for Ultra Mega Power Projects
4. Government open to auction all cancelled coal blocks post 31 Mar, 2015
5. CIL has been asked to take over operational blocks for 6 months
6. CIL to carry mining activities till auction held; operations of consumers will not be disturbed
7. Imposed penalty of INR 295/MT (is to be paid by 31 Dec, 2014) on companies for coal extracted from the date of extraction, as per the CAG report dealing with the financial loss caused to exchequer by the illegal & arbitrary allotments. It will be paid for coal extraction in Q4 FY15 also

Lack of Clarity on these Points

1. Strategy and projected time of auction
2. After CIL takes over the operational blocks, what would be the coal allocation policy
3. If original allottees don’t secure the mine via auction process, how would the settlement of investments made by them take place

Subhasri Chaudhuri, Secretary General of Coal Consumers Association of India, in conversation with SteelMint expressed, “We are hopeful that government will review the coal supply pattern by augmenting the production by all possible means. The industrial and utility sectors have made huge investments, which is causing serious burden.

Also, the domestic economy is hurt, which is a big loss for the nation. Later, it will have to be absorbed in a holistic manner and total sourcing pattern may change. As there has been no paucity in investments, the government has to think over this compassionately.”

Coal Production for various Sectors

It can be inferred from the table below that Power and Iron & Steel sectors have respectively consumed 66% and 29% of total domestic coal produced in FY14.

While, 181 MnT Coal was imported in FY14, which increased by 22.3% in contrast to 148 MnT in FY13. Considering today’s judgment of the Supreme Court, imports will show a significant rise this fiscal year. 93 MnT coal has already been imported in Apr’14-Aug’14.

Consumption in MnT
Source: SteelMint Research

As per SteelMint research, 40 coal blocks, which had started mining, produced 41.2 MnT in FY14. It was predicted that out of 94.9 MnT production capacity, these mines could contribute 53.2 MnT coal in this fiscal year.

List of 40 Coal Blocks that started Production 

Source: SteelMint Research

Coal Blocks that were to start Production in FY15

Source: SteelMint Research

For more details click below:

http://www.steelmint.com/fileForMail/218_Coal_Blocks.pdf
http://www.steelmint.com/fileForMail/SC_Verdict.pdf