Coal news and updates

SC verdict to put Rs 60-bn penalty on power cos: ICRA

September 30: The recent Supreme Court verdict on captive coal blocks would impose a hefty penalty of Rs 60 billion on the power sector, according to an estimate by ICRA.

The court, in its verdict on September 24, has cancelled the allocation of 214 coal blocks and also imposed an additional levy of Rs 295 per ton of coal mined in those blocks since inception by the allocatees (barring the 4 blocks given exemption by the SC). The penalty imposed should be deposited by December 31, 2014.

As per ICRA’s estimates, aggregate penalty till March 2014 for the power sector as a whole is at about Rs 60 billion based on the mining output of about 205 million tons (mt).

About 60% of this penalty is attributed to state sector utilities/JVs, mainly owned/co-owned by corporations belonging to the states of Punjab, West Bengal, Karnataka and Rajasthan; while the balance 40% pertains mainly towards private sector IPP/utilities.

It further said the verdict would impact 18,000 MW of thermal power capacity in the IPP segment and another 19,000 MW capacity in the state sector. These include both operational and under-construction projects.

Of the total IPP capacity likely to be impacted, operational projects comprise 6.3 GW (as on July 2014), while 11.4 GW is expected to become operational over the next two years.

Of the total affected capacity in the state sector, operational projects comprise 9.9 GW (as on July 2014) while under-construction project capacity of 8.9 GW is expected to be operational over the next 2-3 year period.

The report noted that imports of steam coal would surge due to the impact of the verdict. It further said that cost of generation based on imported coal would remain exposed to volatility in steam coal price levels internationally and INR-USD exchange rate. In turn, this will lead to escalation in the power procurement cost for distribution utilities which further would put pressure on retail tariffs for the consumers.