Wednesday, September 24, 2014

214 Illegal Coal Block Allocations Cancelled by Supreme Court // Crony capitalists fined more than Rs 10,000 crore

The Supreme Court today cancelled all but four of 218 coal block allocations by the government over the past two decades, in a tough verdict that has major implications for the energy sector. Most power, steel and cement companies that won coal blocks between 1993 and 2011 will have to return them. The government is now free to auction or allot the blocks to central firms.

A bench led by Chief Justice RM Lodha spared four coal blocks used for mega power projects by Reliance Power and the state-run National Thermal Power Corporation and Steel Authority of India. About 40 companies that had started operating have been given six months' breathing time to wind up business. They have to pay a fine ofRs. 295 for every metric tonne of coal mined, which, some estimates say, could amount to a total of 8,000 to 10,000 crores. Metal stocks fell sharply after the Supreme Court verdict. Sensex also fell over 200 points but recovered later.

"This will affect our production costs, product cost and economy in the long run," said Pradeep Tandon, Executive Vice President of Jindal Steels, one of the affected companies.  On August 25, the court had ruled that said coal blocks were allotted through an "ad-hoc and casual" approach "without application of mind". It said, "Common good and public interest suffered heavily in the unfair distribution of the national wealth - coal."

The court's decision stems from 2012 allegations by the national auditor that the government underpriced coal mines and gave away as much as $33 billion or Rs. 1.86 crores in windfall gains to companies in the scandal that has come to be known as "coal-gate". Coal fuels more than two-thirds of the power generated in India, and while the number of power plants has grown, various court cases and red tape have slowed coal output growth. India is suffering from critically low coal supplies which it needs to fuel power plants. Blackouts are common in the country of 1.2 billion people.

Crony capitalists fined more than Rs 10,000 crore
As the Court had pointed out on an earlier occasion “The entire exercise of allocation through Screening Committee route…appears to suffer from the vice of arbitrariness and not following any objective criteria in determining as to who is to be selected or who is not to be selected. There is no evaluation of merit and no inter se comparison of the applicants. No chart of evaluation was prepared. The determination of the Screening Committee is apparently subjective as the minutes of the Screening Committee meetings do not show that selection was made after proper assessment. The project preparedness, track record etc., of the applicant company were not objectively kept in view.”
Given this, the court has decided to cancel 214 out of the 218 coal blocks that had been allocated. Only four coal blocks which included two blocks allocated to the Sasan Power (an ultra mega power project) in Madhya Pradesh, and one each to NTPC and SAIL were not cancelled. Further, companies which are already operating mines have been given six months to wind up their operations. Over and above this the court has also fined the companies which are already mining coal to pay a fine. As senior lawyer Prashant Bhusan said “The Supreme Court has also asked the companies running the coal blocks for the next months to pay Rs 295 per tonne of coal they extract. They also have to pay the same amount per tonne for the coal they have already extracted from the blocks.”