Apex court takes one step; Centre must do rest
The Supreme Court's Monday verdict holding all coal block allocations between 1993 and 2009 as “illegal”, has cleared the air on the subject as much as it has left behind uncertainties. The Government can now proceed with the transparent method of allotting coal blocks through open bidding, given that the court has found that the method adopted earlier where blocks were given on a discretionary basis, was flawed. The first of the uncertainties can be addressed in subsequent hearings by the apex court when it determines whether the allocations will be cancelled; and if so, whether all of them will be struck down or only those where there has been no mining progress, with the functional ones getting ‘regularised'. Currently, about 30 of the more than 200 blocks have begun mining, producing about 40 million tonnes of coal annually. If the court does cancel the licences, almost all the major industry players will be affected. Either way, all power plant operators will have to pay some kind of penalty. This has upset the market, and the stocks of several power, mining and steel companies have taken a downward turn. The impact of such losses on the balance sheets of banks which have loaned these companies to the tune of several crores is yet to be seen. These banks may now have to deal with a larger burden of non-performing assets. Overall, the judgement has reportedly wiped out over Rs 20,000 crore in market capitalisation of metals and power companies that had been awarded coal blocks. It is still unclear what kind of toll this will take on India's coal-starved power industry. It is possible that the resultant upheaval may cause shortages and even push up power prices for the end consumer at a time when coal prices have dropped globally.
Additionally, the verdict will also have some project-specific consequences. For example, while the apex court has kept the ultra mega power projects out of its ambit, it has also prohibited coal mined for these projects to be diverted elsewhere. This may derail at least one corporate’s plans to divert coal from mines in Madhya Pradesh to the company's project in the same State. The transfer had been authorised by the UPA Government in 2012; a reversal now will only add to investor concerns about retrospective laws and rules. Indeed, Monday’s verdict as a whole only adds to the fears that were expressed when the Supreme Court cancelled the 2G licences last year, after it decided that they had been awarded in a similarly ad hoc manner that had cost the public exchequer several thousand crores. At a time, when the Government is seeking to boost investor sentiment and revive economic growth, the coal verdict may dampen the mood. This is not to suggest that the apex court’s decision was flawed. It is to emphasise that Governments must adopt legally correct means in their quest for economic development. Short-cuts can prove to be counter-productive, as this court verdict demonstrates.