With the Supreme Court likely to announce its final verdict on September 1 over the coal block allocation scam, and if in the likelihood of the blocks allotted between 1993 and 2010 getting de-allocated, then, according to industry experts, investments worth Rs5 lakh crore will be in the danger of being declared as non-performing assets (NPAs).
The Supreme Court on August 25 had said that all the (218) coal blocks issued during the aforementioned period, were “illegal” and it is going to announce on September 1 whether to cancel these reserves or not.
Majority of these coal blocks were allocated for end use projects in the steel, power and cement sectors and the investments in these are to the tune of Rs4 lakh crore till FY14. Industry sources point out that in case blocks get de-allocated, banks from which private players had taken loans to exploit these coal reserves for running their plants, will turn them into NPAs.
Towards the power sector alone, the total exposure of the banking sector is to the tune of Rs5 lakh crore, sources pointed out. Out of the 218 blocks which were given away between 1993 and 2010, 119 were allotted to private entities and 99 to public sector undertakings. Of these only 31 mines are currently operational, sources said.
Coal is a significant raw material for the steel, power and cement industries and despite the fact that there is no dearth of the dry fuel within the country, owing to shortfall in its demand-supply cycle, the domestic producers have to rely on imported coal.
In 2013-14, 169 million tonnes of coal was imported at a cost of Rs95,000 crore. By 2016-17, this figure is expected to be around Rs1,44,000 crore.
Considering the fact that owing to poor coal supplies from Coal India ltd (CIl), power plants have long been functioning at lesser plant load factor (PlF) and this had led to a power crisis-like situation in 2012, in case the Supreme Court de-allocates these blocks, it is not only going to affect the power and steel sectors, but will lead to a crisis in the overall power supply chain of the country.
Already in the span of last two days (starting from August 27), the Government has received distress signals from western and northern grids regarding major shortfalls in power supply owing to fast depleting quota of coal in plants.
Industry sources further pointed out that in case blocks get cancelled, then the overall business environment within the country will get adversely affected and even wondered that if the allocations were indeed arbitrary, then why didn’t other companies complain about them at the time when these were being distributed.