Coal news and updates

Coal block penalty bonanza for govt

In compliance with the Supreme Court directive, power, cement and steel companies holding captive coal-producing blocks have forked out Rs 6,108 crore, at Rs 295 per tonne, towards penalties imposed till now on the mines.

While this huge non-tax revenue has come as a boost for the government seeking to prune twin deficits, it poses further financial pressure on companies including Hindalco, Jindal Steel & Power, Monnet Ispat, Usha Martin, CESC and Prakash Industries that figure prominently in the list of 18 companies that have remitted penalties till December 31, 2014.

The Supreme Court had cancelled the allotment of 204 out of 214 coal blocks in September last year, terming their allocation made since 1993 as “illegal". The court had imposed a penalty of Rs 295 per tonne on coal mined from 42 captive blocks. About 37 blocks were already producing coal while another five were to become operational when the Supreme Court directive came.

The court had also directed the power and steel companies holding coal blocks to make payments towards penalties before December 31, 2014.

Most companies have coughed up the penalties, as it was a pre-condition to participate in the coal blocks’ e-auctions, to be completed by end of this fiscal.

“We have received over Rs 6,108 crore as levy from owners of producing coal blocks. Most companies have come forward to pay the levy as this was a pre-condition for their participation in the auction process,” coal secretary Anil Swarup told Financial Chronicle.

The Supreme Court has extended the deadline to June 30, 2015 to pay the penalties on coal produced from these mines after September 24, 2014.

Penalties totaling to Rs 6,108 crore paid by steel and power companies has come as a bonanza for finance minister Arun Jaitley ahead of his budget presentation later next month.

This will not only help government efforts to rein in fiscal deficit but also prune the current account deficit given that both direct and indirect taxes mop up have been below targeted levels.

The country’s fiscal deficit has already touched a whopping Rs 5,25,000 crore as of April-November, 2014. This translates to about 98.9 per cent fiscal deficit targeted for the entire financial year. The government has budgeted fiscal deficit at 4.1 per cent of GDP for current fiscal.

As per the list detailing penalties paid by the companies, Jindal Steel and Power Ltd and Jindal Power Ltd headed by Naveen Jindal have taken the biggest hit. Together, the two firms have paid Rs 3,089 crore as penalty on coal mined from Gare Palma mines in Chhattisgarh.

Similarly, CESC has paid Rs 996 crore on coal from its Sarshatoli mines, while Hindalco had to forego Rs 566 crore on coal from Talabira-I mine. Other companies that forked out penalties include Sunflag, RRVUN, Sova Ispat, Sarda Energy, BS Ispat, MPSMCL, Electrosteel, Usha Martin, Jai Balaji, KPCL, Topworth, Jayaswal Neco.

The companies that were given blocks for captive use can win back the mines through the auction once they have paid the additional levy. These companies will, however, have to bid aggressively to get back their respective mines as they cannot take the risk of running their operational power or steel plants without any fuel support.

The owners of operational captive coal blocks have extracted 330 million tonne (mt) of fuel cumulatively till September 2014. The annual production potential of 42 operational blocks was 90 million tonne.

“We expect good response from bidders in the forthcoming auction process as is also evident from the list of companies that have come forward to pay levy. The first list of blocks advertised for auction has already received more than 100 registrations,” Swarup said.

Experts said that the auction of coal blocks will streamline the government’s fuel allocation policy in future. But, several infrastructure companies are expected to come under pressure as they have already piled up heavy debt.

In September, the Supreme Court had quashed 204 coal blocks allotted since 1993. This sent shivers down the banking industry, whose exposure to miners, power and steel plants was estimated to be about Rs 1 lakh crore.

Immediately after the apex court verdict, the government decided to promulgate an Ordinance to commence the auction process for de-allocated coal blocks. As of now, about 101 out of 204 de-allocated blocks have been put up for fresh bidding by cement, steel and power sectors under a two-pronged mechanism of allotment and auction.

While coal blocks identified for auction will be open to all entities for placing their bids, only government companies would have the option of getting blocks under the allotment route where identified fuel source would be offered to them on payment of reserve price.

Of the 101 blocks, 65 mines would be auctioned while 36 other blocks will be directly allotted to state-owned companies. The power sector is being given priority in the process as the Supreme Court order had impacted roughly 24,000 MW power-capacity that were being set up with assured fuel from the captive coal mines. So, 63 mines from the initial list of 101 would be given to the power sector, while the rest would be for sectors like steel and cement.

Source: Financial Chronicle