Coal Block Allocation Case: SC to take a call on captive blocks on Monday

NEW DELHI: On Monday, the Supreme Court will decide what to do with captive coal blocks, having deemed more than 200 allocations made since 1993 to be illegal. While writing their order, one of the biggest questions before Chief Justice R M Lodha and his fellow judges Madan Lokur and Kurian Joseph will relate to the 40-odd blocks where mining has already started.

What should be done with those blocks? Should these blocks be treated leniently as, unlike most of the companies which squatted on their blocks, these actually began mining?

And because the most investment has been made into these blocks? Dipesh Dipu, a former director with Deloitte Touche Tohmatsu, who is now an associate professor at the Administrative Staff College of India, doesn't think so.


"If the government of India did not have a locus standi to allocate coal blocks in the first place, how then can such allocated coalblocks be allowed to be retained?" he said.

Regardless, as reported by ET on Friday, a clutch of banks were trying to meet attorney general Mukul Rohatgi. They were particularly jittery about captive blocks that are already operational and pledged as collateral by companies.

Any de-allocation, an independent director in a PSU bank told ET on Friday, "would severely impact the viability of the entire project", resulting in a steep increase in the banks' NPAs (nonperforming assets).

Sudiep Shrivastava, one of the key lawyers in the coal allocation hearings, challenges the banks' apprehensions of diminished viability. "By accessing coal at low rates, these companies have already made large windfall gains," he said.

"End-use plants can also get coal through the linkage route, which means none of them will become an NPA," he said. "This has already happened in projects like KSK Mahanadi Power. Where the block has not been developed yet the project went on stream by getting a linkage."

His contention is that the captive block policy has skewed market dynamics."Barely 10% of cement, power and sponge iron plants have captive blocks. The rest have to buy coal from Coal India. This is not creating a level playing field," he says.

Rajiv Agrawal, the secretary of the Indian Captive Power Producers Association, agreed. According to him, India's coal shortage – the outcome of a few companies squatting on more than 44 billion tonnes of coal – is creating an outcome where coal meant for captive power units is being diverted to independent power plants.

"A captive power plant could produce power at Rs 3-4.50 per unit. However, we now have to buy power at rates as high as 8-10. "How can industry be competitive after paying so much for power?" he says.

According to Shrivastava, one rationale for allowing captive mining was that scientific methods would be used. "But most companies are violating mining plans and environmental management plans. The objective of scientific mining has not been met," he said.

For this reason, he said, all blocks should be deallocated and given to Coal India Ltd (CIL). This is a remedy that Kameswara Rao, leader, energy, utilities and mining, at PricewaterhouseCoopers (PwC) India, doesn't agree with.

"The suggestions of auction of these blocks or to grant them to CIL are both infeasible as it would increase market concentration, taking the coal sector further away from competition, which it should prepare for."

Instead, he said, "The most realistic solution is to treat blocks that are operating or significantly close to operation as regulated projects and assess each block for prudent costs incurred, supply contracts signed, and permit them a reasonable return. This would bring back the welfare element that was judged as missing."