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Cancellation of coal blocks likely to erode investor confidence

October 13, 2014

At a time when domestic production of coal is already constrained due to land acquisition hurdles, delays in grant of environment and forest clearances and difficulties faced in evacuation of coal through the railway network, the Supreme Court’s decision last month quashing the allocation of 204 coal blocks out of the 218 coal blocks allocated since 1993 is likely to erode investor confidence and have a negative impact on the country’s economy.

On August 25, the Supreme Court declared all coal block allocations since 1993 as illegal. Between 1993 and 2010, a total of 218 coal blocks were allocated by the government.

The 204 coal blocks whose allocations have been cancelled by the Supreme Court include 37 coal blocks that are under production and 5 coal blocks likely to come under production. In case of these 42 coal blocks, the cancellation of allocation comes into effect from March 31, 2015. The coal blocks under production have to pay a penalty of Rs. 295 for every metric tonne of coal mined.

Out of the 218 coal blocks allocated since 1993, 14 coal blocks have been spared. Among them are SAIL’s Tasra coal block, NTPC’s Pakri-Barwadih coal block and 12 coal blocks allocated to ultra mega power projects.

Reacting to the development, the Confederation of Indian Industry said the Supreme Court’s decision was going to lead to serious supply disruptions which in turn would accentuate power crisis in the country and force higher imports impacting the current account deficit.

“While the judgment may have been intended to bring in transparency, it will jeopardise the investments made in the sector. It will raise questions on sanctity of government policies impacting the investment climate. The government will need to expedite reallocating the cancelled producing blocks so that production is not affected in the short term,” said Ajay Shriram, President, CII, in a statement.

Expressing a similar view, the Associated Chambers of Commerce and Industry of India said the Supreme Court ruling was a bit harsh.

“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,” said Rana Kapoor, President of ASSOCHAM.

“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,” he said.

Both the associations called upon the government to put in place a transparent mechanism for allocation of coal blocks at the earliest.

The country’s total consumption of coal during 2013-14 stood at 739.42 Mte against domestic coal supply of 571 Mte. The gap between total consumption and domestic supply was met through import of coal to the extent of 168.44 Mte.
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