SC declares coal block allocations between 1993 and 2009 as illegal

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In a significant verdict, the Supreme Court, on Monday declared all coal block allocations between 1993 and 2009 as illegal. Furthermore, the apex court added that the allocations were carried on in an unfair, arbitrary and non-transparent manner, without adhering to any objective criteria. Following the verdict, the fate of about 200 coal blocks allocated within the above mentioned period seems to hang in the balance.

It is worth noting that in the year 1996, a promoter of a steel and power company contacted the coal ministry asking supply from Coal India. However, a joint secretary advised him to consider securing a coal block allocation instead. After much persuasion, the head of the private firm was confident to take the plunge of investing in a coal mine. In that year alone, the government officials successfully convinced about half a dozen promoters to allocate coal blocks.

However, the Supreme Court’s verdict has compelled the investors to regret their decision. The government, has also in the last three years imposed restrictions on companies from selling electricity in short term markets from captive coal blocks and now plans to introduce new royalties.

The Supreme Court did not raise any objections on the allocation of 12 blocks to the Ultra Mega Power Projects (UMPPs) as it was conducted through the process of competitive bidding. Instead, the UMPPs have been barred from diverting coal to other projects.

Sector players and experts are now hoping that the SC may order cancellation of allocation for mines where there has been no major investment and will embark upon a more lenient approach towards completed projects.

There are speculations that the SC’s verdict will increase the burden on Coal India to supply fuel for projects that may have otherwise sourced coal from self allocated mines.

“The judgment deepens the power sector crisis further. Immediate remedial steps are required to be put in place by the government to mitigate the adverse implications of the judgment i.e., the expected fall of outputs from these mines. If these steps are not taken the coal deficit situation will worsen further”, Ashok Khurana, Director General, Association of Independent Power Products was quoted as saying.