Coal news and updates

The Supreme Court judgement on coal blocks will set the stage for the next stage of reforms on the coal sector. For one, it gives the government an opportunity to truly open up the market by allowing private investment, trading and entry of global players in the sector. In the short term, however, the court has allowed a breather of six months before the blocks are handed over to Coal IndiaBSE 1.27 % and this may lead to higher production from the operational blocks.

 

Kameswara Rao, Leader (Energy Utilities& Mining Practice) at PwC said : "The SC judgment strong consequences for both the short and long-term. It paves the way for the government to introduce comprehensive reforms and develop a competitive market by permitting private capital, trading, global technology and doing away with end-use restrictions, all of which are restricting development at present." 

 

"Other than the incidence of penalties, it will be business as usual for the companies the next six months before CILBSE 1.27 % takes over end of March 2015. The companies will aim to maximise production in this period, as it would improve returns even if marginally, and it may help get better compensation if any is offered when these are finally auctioned by the government," Mr Rao said. 

 

He was commenting after the Supreme Court on Wednesday cancelled all but four of the 218 coal blocks allocated since 1993. The court let off two coal blocks operated by Reliance PowerBSE -3.82 % and one each by state-run NTPCBSE -0.76 % and SAILBSE 0.22 % as they are associated with Ultra Mega Power Projects (UMPP). Companies will also be allowed to take part in the auction when it takes place in future.

 

But the situation is likely to remain complex and worrisome in the transition period before the blocks are auctioned off. For instance, a lot of contracts have been signed with major equipment suppliers, like Komatsu and Caterpillar. The question is whether Coal India will honour those equipment deals, post March 2015. There will be other radical challenges as well. It remains to be seen as to how bank deals will work out, like in cases where the banks may have asked for personal guarantees from promoters.

 

 

Source: ET