Faced with delays in key approvals and sudden change in tariff terms, Essar Power has decided to surrender the Tokisud North coal block in Jharkhand in which it has already invested Rs 4.9 billion (Rs 490 crore).
The move will cripple the company's 1,200-MW Mahan plant in Madhya Pradesh.
The Ruias-run company has made significant progress in developing the coal block, which has extractable reserves of 52 million tonnes, and won through a competitive bidding process in February 2015 offering Rs 1,100 a tonne, the highest in the industry.
Surrendering the coal block will hit its 1,200-MW, Rs 80-billion (Rs 8,000 crore) Mahan Power Plant, which had been shut between September 2014 and May 2016 after the Supreme Court had cancelled all the 204 coal blocks allotted by the previous Manmohan Singh government citing corruption.
The Mahan plant resumed operations in May 2016 after Essar Power procured coal through government conducted e-auctions and the company hopes to rework the power purchase agreement with the MP discom accordingly.
"We've written to the coal ministry expressing our interest to surrender the Tokisud North Coal Mines in which we have already invested Rs 490 crore. The block needs over Rs 600 crore more investment," Essar Power Group vice-chairman Pradeep Mittal told PTI over the weekend here.
Explaining the reasons for the drastic move which will again cripple its Mahan power plant, Mittal said, "Fixed price capping for power projects with coal blocks is arbitrary as it was taken post-facto, well after the bidding process was over."
"The move has completely altered the bidding norms under Section 63 of the Electricity Act, 2003 and if this information was available with the bidders prior to the coal block auctions in 2015, the results would have been very different," he added.
He also noted that this argument was accepted by the Delhi High Court, which was further upheld by the Supreme Court while hearing similar matters.
Mittal said they have moved the Delhi High Court seeking a refund of the investment it has made in the block until date.
The coal block is linked to its 1,200-MW Mahan thermal power project. The first unit of 600 MW of Mahan began operations in April 2013 but was suspended due to non-availability of coal after the SC in September 2014 cancelled the mining licences of some of the attached Mahan coal blocks.
It can be recalled that earlier, Jindal Thermal Power and Monet Ispat had successfully approached the courts and obtained approvals to surrender their share in the block.
"We have asked the government to treat our case on par with Jindal and Monet cases, Mittal said.
He said the decision to surrender the mines follows the delays in some of the final approvals for the mines, which are factors not in their control.
The mine is classified under Schedule 2 of the coal ministry and has extractable reserves of 52 million tonnes.
The decision comes after the company had in September 2016 made a special request to the government to reconsider the decision to terminate the contract for developing mines while agreeing to clear the dues along with penalty of Rs 10.6 million (Rs 1.06 crore) and an upfront payment of Rs 175.8 million (Rs 17.58 crore) for the block.
The coal ministry had issued a termination notice to the Tokisud North coal mines and asked them to forfeit Rs 2.61 billion (Rs 261 crore) bank guarantee for non-payment of an upfront amount for the block.
The trouble started after the company defaulted on two of the three instalments. It paid the first instalment of Rs 330 million (Rs 33 crore) on time but defaulted on the second and third instalments of Rs 175.8 million (Rs 17.58 crore) each.
The Tokisud mines were first with GVK Power, which lost the licence after the apex court cancelled all the 204 mines in September 2014.