Government cancels Jaypee Cement's coal block in Madhya Pradesh's Mandla

Coal ministry claimed that it got to know about the sale of cement and captive power plants only in Dec 2017 leading it to conclude that several clauses related to captive coal mining have been floute

Citing breach of agreement, the coal ministry has cancelled the rights of Jaypee Cement Corporation (JCCL) from digging out fuel from its captive coal block in Mandla in Madhya Pradesh.

In a letter sent from the ministry to the company, it has been stated that the company has flouted several clauses of the Coal Mine Development and Production Agreement (CMDPA) and is "not serious about the development of the coal mine".

As a result of the decision, the Rs. 640.9 million performance security and other payments so far made by JCCL stands appropriated.

The 13.35 million tonne (mt) Mandla coal mine was allotted to JCCL in March 2015 after the company emerged as the successful bidder for the block. Its bid stood at Rs. 1,852 a tonne.

The produce from this mine fed JCCL's 3.65 mt Balaji cement plant in Andhra Pradesh and also catered to captive thermal power requirements of the plant. As per the letter, the total coal entitlement for these plants stood at 34.4 million tonne.

In June 2017, UltraTech Cement acquired the cement plant as well as two captive thermal power producing stations from JCCL without the mining rights from the coal mine. Subsequently, the entire produce from the mine was routed to feed its 60 MW captive thermal power plant for the Shahabad cement plant.

As per the letter, "while the coal entitlement of the remaining plant is 11.36 mt, the extractable reserve of the coal mine is 13.35 mt i.e. the extractable reserve exceed 150 per cent of the coal entitlement of the remaining Specified End Use Plant".

This is in contravention of clause 2.1 of CMDPA which stated that the extractable reserves of the coal mine should not exceed 150 per cent of the annual coal requirement of the Specified End Use Plant.

The plant sale had also violated clause 13.1.1 of CMDPA which prevents any change in control of the end-use plants as specified in the agreement without obtaining mining rights.

The letter furthered that the coal ministry had issued a show-cause notice in March 2017 to JCCL and based on their response, another letter was sent asking them to comply with the modalities in CMDPA.

The coal ministry claimed that it got to know about the sale of cement and captive power plants only in December 2017 leading it to conclude that several clauses related to captive coal mining have been flouted.

Before its allocation to JCCL, the Mandla block was owned by Madhya Pradesh State Mining Corporation Ltd.

The acquisition of JCCL's six integrated cement plants and five grinding units by UltraTech Cement for Rs. 162 billion in June 2017 marked the largest stressed asset resolution sale that year. As part of the deal, UltraTech Cement took over JP Associates' debt of Rs. 120 billion along with ICICI Bank's debt of 53 billion.