SC cancels all but four coal block allocations

Six-month breather with fine for 42; CIL gets deallocated mines for now

The Supreme Court on Wednesday cancelled all but four coal block allocations, made by successive governments over the past two decades, on the grounds of illegality under the Coal Mining Nationalisation Act. The decision is estimated to impact around Rs 2.85 lakh crore worth of investments linked to the 214 coal blocks and their end-use plants. The four allocations spared in the order are those belonging to Reliance Power's Sasan ultra mega power project, and government-owned NTPC and SAIL.

Referring to the Narendra Modi-led central government's stand that any impact arising out of cancellation of coal blocks could be absorbed, the unanimous judgment of the three-judge Bench observed: "The government is fully prepared to face the socio-economic impact of coal block cancellations."

Of the 40 mines that are operational and six that are ready to produce, the court exempted only the non-joint venture operational mines of state-owned entities, besides the two mines allocated to the Sasan UMPP.

The court said: "The counsel had earlier submitted that 40 mines that were already operating might be saved and six others that were about to start operations also might be exempted. But the government did not insist on this plea and told the court that since all the allocations were held to be arbitrary and illegal in the August 25 judgment, their fate could also be decided by the court... There is no reason to save them from cancellation. The allocations are illegal and arbitrary."

In what could deal a regressive blow to the coal sector, which is looking for decentralisation, the court directed state-owned Coal India Ltd to take over all the cancelled blocks. The decision will come into effect after March 31, 2015. The period until then will be the "breathing time" to decide the way forward and give Coal India some time "to adjust to the changed situation".

Private companies like Jindal Steel & Power, Hindalco, Essar and Prakash Industries, and state government entities like Madhya Pradesh State Mining Corporation will be rendered without coal mines. "The verdict questions the credibility of the government's licensing processes. Bankability of these types of licences and concessions are critical - not only for the developers of these projects but others like investors, lenders and shareholders as well. Besides, it will have adverse impact on foreign investment," said Ramesh Vaidyanathan, managing partner, Advaya Legal. What was worse, he said, was that a process running for more than 20 years had been rendered illegal, implying that the clock could be set back several years.

IMPACT ANALYSIS

THE GAINERS

• RELIANCE POWER
• NTPC
• SAIL

THE LOSERS
Private firms

• Hindalco
• JSPL
• Monnet Ispat
• Usha Martin

Public-sector firms

• West Bengal Electricity Board
• West Bengal Power Development Corp
• Punjab State Electricity Board
• Karnataka State Power Corp
• Rajasthan Vidyut Vyapar Nigam
• Arunachal Pradesh Mineral Development Corp
• West Bengal Mineral Development Trading Corp

STIFF CONDITIONS & LOSSES

• Rs 295 per tonne Fine on each coal block holder; total for operational blocks Rs 7,905 cr
• 267 mt Amount of coal operational mines have to produce by the end of FY15
• Rs 4.4 lakh cr Estimated loss in terms of royalty, cess, direct & indirect taxes and coal import

The court said the central government was keen to move ahead but needed some time to manage the emerging situation, so "breathing time" was also required to be given to the allottees, to manage their affairs on cancellation of coal block allocations.

The Supreme Court, to compensate the government to that extent, also imposed a penalty of Rs 295 a tonne on all block holders that had not operated their mines. The payment will have to be made on or before December 31.

PLOUGHED BACK

• Jun ’93: Coal Mines (Nationalisation) Amendment Act to allow captive coal mining passed
• 1993 to 2009: Govt allocates 201 coal blocks to private and public-sector firms for captive consumption
• Aug 17, ’12: CAG says govt extended undue gains to firms by not auctioning 57 blocks allocated between 2006 and 2011
• Aug 27, ’12: PM tells Parliament CAG’s assessment of Rs 1.86-lakh-crore loss to exchequer due to allocation not justified
• Sep ’12: CBI begins grilling in the alleged coal scam after Central Vigilance Commission forwards complaints; raids are conducted, FIRs filed
• Jun ’13: FIR filed against JSPL Chairman Naveen Jindal; former minister Dasari Narayan Rao also named as an accused
• Oct ’13: FIR filed against industrialist Kumar Mangalam Birla and former coal secretary P C Parakh for alleged criminal conspiracy and abuse of official position
• Aug ’14: SC terms allocations made between 1993 and 2010 illegal
• Sep ’14: SC cancels 214 block allocations, directs CIL to take over these mines

The court clarified the figure of Rs 295 a tonne had been arrived at by considering the calculations of the Comptroller and Auditor General. "This compensatory amount is based on the assessment made by CAG. It is possible that the cost of coal extraction from an underground mine has not been taken into account by CAG; but in matters of this nature, it is difficult to arrive at any mathematically acceptable figure quantifying the loss sustained," said the judgment.

The judgment added the coal extracted from now to March 31 will also attract the additional levy of Rs 295 per tonne.

In relation to the Central Bureau of Investigation's scrutiny of 12 of the 46 coal block allotments identified by the Attorney General, the judgment said: "The matter against any other allottee will continue and be taken to logical conclusion."

Since 1993, the Centre had allotted captive mines for identified use - in steel & iron, cement, power, coal liquification & sync gas plants - through the screening-committee route. The apex court's August 25 judgment had condemned the opaque procedure of allocation by screening committee as mindless and illegal. Of the 218 allocations, 105 were made to private companies, 99 to government entities, 12 to UMPPs and two were coal-to-liquid blocks. After adjusting 24 deallocations and two reallocations, a total of 194 allocations, including those to private parties, are the subject matter of the court case.