Will a recent government decision erode investor confidence or help reshape an industry with lacklustre performance record?
MUMBAI (MINEWEB) – The mass cancellation of coal licences has sparked off an uproar in India Inc. Many captains of industry have said it could cause serious supply disruptions and exacerbate India’s on-going power crisis. Worse, the economy would have to pay a heavy price for the Supreme Court’s decision to cancel coal blocks and get them auctioned by the government.
“The authority of the government is at stake here. The damage is unlikely to be confined to only coal blocks. Any administrative decision taken in the future in the mining sector would be fraught with uncertainity, and would fail to inspire confidence and carry credibility,” said a senior corporate official.
The Supreme Court, India’s highest court, recently ruled that allocations of 218 coal blocks for mining were all illegal except for four, and cancelled the whole lot. The total investment at stake: $32.55 billion (Rs 2,000 billion). Coal producers could also face penalties of upto $3 billion.
Amar Ambani at broking firm IIFL said the focus would now shift to investor uncertainty about investing in the Indian mining industry. The impact of the verdict would be highest on JSPL and Hindalco in the metals space, he added.
Others lamented that the economy, which was just about showing the first signs of a spring bloom after two years of deep frost, could soon go into reverse mode.
Vikas Khemani, from broking firm Edelweiss Securities, said, “Some 40 producing coal blocks are set to pay a penalty. All producing coal blocks are to be turned over to Coal India within the next six months. The judgement is silent on possible auction of the coal blocks and the onus is on the government to decide the future course of action. Mine owners’ woes would continue.”
Analysts added that bidders in the coal mine auction would be reluctant to borrow money from banks to start mining till the issue was finally resolved, thus causing further delays and cost escalation.
The court has allowed these cancelled blocks to continue extracting coal till March 31, 2015. The central government and Coal India Limited (CIL) are expected to come out with a policy for the new situation.
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