SC verdict on coal block allocation to hurt economy

It's curtains for almost all coal block allocations of the last two decades and a rough ride ahead for big investors, banks, and possibly even the economy. The Supreme Court on Wednesday cancelled 214 of 218 coal block allocations to various private companies since 1993, calling the process "fatally flawed, non-transparent and arbitrary". On the chopping block was, however, Rs 6.87 lakh crore of investment in coal blocks and end-use plants.

"Beneficiaries of the illegal process must suffer the consequences. Our judgement highlights the illegality and arbitrariness in the allotment of the blocks and these consequence proceedings are intended to correct the wrong done by the Union of India. These proceedings look to the future by highlighting the wrong; it is expected that the government will not deal with the natural resources that belong to the country as if they belong to a few individuals who can fritter them away at their sweet will," the bench headed by Chief Justice RM Lodha-who retires on Friday-said in a hard-hitting judgment.

The order is reminiscent of the cancellation of all 122 2G spectrum licenses in February 2012 on ground of arbitrariness. The bench refused to sympathise with private companies which vehemently argued against cancellation by pleading that a total of Rs 2.87 lakh crore have been invested in 157 coal blocks and Rs 4 lakh crore in end-use plants.

SHADOW

Many wrongs were righted on Wednesday, but a long shadow did fall on the economy. The power sector, two-thirds of whose output is from coal, made it to the endangered list. Banks which have pumped in huge amounts to finance projects related to the coal blocks have been left exposed. Senior officials say as many as 12 major power projects, involving an investment of Rs 36,000 crore for a projected generation capacity of 7,230 MW, are crippled by a shortage of coal. Power generation units commissioned after 2009 that have a cumulative capacity of 42,480 MW are currently getting only about two-thirds of their coal requirement from domestic mines. India has the world's fifth largest reserves of coal but is among the biggest three importers. The monsoon hasn't been too good either this year, and India's ports aren't exactly raring to handle a sudden rush of coal.

CII president Ajay Shriram said the judgement would "jeopardise the investments made in the sector" and "raise questions on sanctity of government policies impacting the investment climate". Banks, public as well as private, have been left out on a limb. The State Bank of India admitted to an exposure of Rs 50,000 crore, while the Industrial Development Bank of India put its exposure at Rs 2,000 crore.

Adding to the agony of the allottees, the Supreme Court directed them to pay within three months an additional levy of Rs 295 per metric tonne of coal extracted to "compensate financial loss caused to the exchequer by the illegal and arbitrary allotments". The only relief is the six months of breathing time allowed to wind up operations-by March 31, 2015. This, the court said, is for the allottees to "adapt to the changed situation, adjust and manage their affairs".

All private firms allotted blocks by UPA and NDA governments stood to lose. Only four blocks-three related to Ultra Mega Power Projects of the government and one of Steel Authority of India Limited have been saved from the guillotine. The court allowed the Centre and Coal India to take over operation of 42 such blocks which are operational.

Wednesday's order paves the way for the Centre to put remaining 172 blocks for auction. For the past two years, the court had been scrutinising coal block allocations since 1993 on two Public Interest litigations, one of them filed by lawyer and activist Prashant Bhushan and the other by lawyer Manohar Lal Sharma seeking cancellation of blocks on the ground that rules were flouted in giving away natural resources and that certain companies were favoured in this process.

ILLEGAL

The court had on August 25 termed all 218 allocations illegal but decided to hear the Centre, allottees and sponge iron and steel manufacturers on the consequences.

Attorney General Mukul Rohatgi had said the government was agreeable to cancellation of licences of allotees who were still holding letters of allotment and had not still entered into mining agreements but had pleaded with the court to save 46 blocks which were functional. The court in its judgment said: "Learned Attorney General identified 46 coal blocks that could be saved from the guillotine, since all of them have commenced production or are on the verge of commencing production. As these allocations are also illegal and arbitrary they are also liable to be cancelled."

Terming the allotments "illegal", the court had on August 25 said: "Entire allocation by Screening Committee from 14.07.1993 in 36 meetings and the allocation through the Government dispensation route suffers from arbitrariness and legal flaws. Screening Committee has never been consistent, it has not been transparent, there is no proper application of mind, it has acted on no material in many cases, relevant factors have seldom been its guiding factors, there was no transparency and guidelines have seldom guided it. On many occasions, guidelines have been honoured more in their breach".

The wrongdoings of the great coal rush have been addressed but the price may end up causing an inordinate amount of hurt.

GUIDELINES BY THE APEX COURT ON COAL BLOCKS

>> "Except two allocations made to Ultra Mega Power Projects and the two allocations made to the Central government public sector undertaking not having any joint venture, all other allocations are cancelled."

>> "Cancellation of blocks will take effect only after six months from March 31, 2015. Six months is being given since the Centre and Coal India Ltd would need time to adjust to the changed situation and move forward.This period will also give adequate time to the coal block allottees to adjust and manage their affairs."

>> "Allottees other than four coal blocks exempted by the order must pay an amount of `295 per metric tonne of coal extracted as an additional levy."

>> "Scrutiny by the CBI in respect of allotment of 12 blocks out of 46 will continue and be taken to its logical conclusion."

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SC ON THE 172 (80 ALREADY REVOKED BY GOVT) WHO WERE JUST HOLDING LETTERS OF ALLOTMENT

"As far as this category of coal block allotments is concerned, they must be cancelled. There is no reason to save them from cancellation. The allocations are illegal and arbitrary; the allottees have not yet entered into any mining lease and they have not yet commenced production. Whether they are 95% ready or 92% or 90% ready for production (as argued by some learned counsel) is wholly irrelevant. Their allocation was illegal and arbitrary, as already held, and therefore we quash all these allotments."

SC ON 46 FUNCTIONAL BLOCKS GOVT WANTED TO BE SAVED

"The Attorney General identified 46 coal blocks that could be saved from the guillotine, since all of them have commenced production or are on the verge of commencing production. As these allocations are also illegal and arbitrary, they are also liable to be cancelled." *Four of these were, however, not cancelled by the apex court.