Post apex court's cancellation of 214 coal blocks, companies seek clarity on govt roadmap
Post the Supreme Court verdict on Wednesday that cancelled licences of all coal blocks allotted between 1993 and 2010, affected companies and industry participants are now keenly awaiting the government's action plan that will mitigate the cascading effect of the ruling.
The order is seen as a major setback for power, cement and metal companies that are dependent on these mines to run their operations. The apex court has, however, spared four coal mines being operated by Reliance Power and one each by Steel Authority of India and NTPC.
The 40 mines which are currently operating include mines of Jindal Steel & Power, Hindalco Industries, Monet Ispat, Essar Energy, Tata Power, Sesa Sterlite, Adani Power and Jaypee group.
Among the worst hit are JSPL and Hindalco as their greenfield projects are dependent on these captive coal mines.
On Wednesday, shares of Jindal Steel plunged 10%, Usha Martin fell 10%, Monnet Ispat 7% and Hindalco fell 1.2%, on the BSE.
Apart from the 40 of the 105 blocks with private companies that are producing coal, six others are ready for production. These mines produce 53 million tonne (mt) of coal, about 10% of the total projected output from all blocks, and feed 26,000 mw of power output and 12 mt of steel production.
While 40 operating mines have got a breather of six months, around 174 coal blocks have been de-allocated immediately.
"I am sure that this government would have chalked out a plan on how to tackle this situation. As you know, lakhs and crores of investment have gone behind these mines, and many companies and businesses. I am sure the government has an action plan, we will learn more about it in coming days and months," Hindalco Industries chairman Kumar Mangalam Birla said in annual general meeting held on Wednesday.
A leading rating agency Crisil said in a statement that the players which have operational coal blocks will witness a sharp decline in profitability post 2014-15 as they would have to substitute captive coal with imported coal which is about four times more expensive. In 2015-16, impacted players in the sponge iron and aluminum sectors are expected to witness a 900-1,000 basis points and 300-400 basis points decline, respectively, in operating profitability.
Ashok Khurana, director general of association of power producers, said he is not seeing any immediate impact of power or coal supply as the court order has very clearly given six months for transfer of resources from private to public entity. "It now remains to be seen how the government draws a contingency plan having minimal coal disruption for end use projects," said Khurana.
He, however, stressed that penalty of Rs 295 per tonne on coal extracted will have to be paid by all miners.
"This penalty will have an immediate impact on power developer's balance sheet. Coal price is a pass-through for developers. We are looking at power price impact of 18-30 paise per unit depending on gross calorific value and station heat rate," Khurana said.
"Tata Power had two coal blocks jointly allocated to it, along with other co-allocatees. We would study the order and discuss the same with board before having a view point. Tata Power would look forward to opportunities of having a new, legally enforceable framework by which coal blocks could be awarded, perhaps at an early time," the company said in a statement.
For steel companies which have been battling shortage of iron ore due to mining bans in various states, are going to feel more heat going forward as their power units were dependent on these captive coals. "Production cost of these steel companies will go up, as they might have to procure coal from auctions at higher cost or even import coal," Prakash Duvvuri, head of Research at OreTeam said. He said that ports like Paradip have already started seeing major unloading of coal in past few days.
Some analysts dna spoke to raised concerns over the investor sentiments.
"The ruling creates trust deficit in the government and its actions. This definitely sends negative for investor community," an analyst from leading domestic brokerage said.
Many, however, believe the court's order will bring order to the current coal allocation process and bring more transparency and accountability in the coal mining sector.
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