The Supreme Court order terming all coal blocks allocated between 1993 and 2011 as illegal as the allotment process lacked transparency has added to the uncertainty bogging the power and metal sectors.
The development has caused panic among companies which are likely to be affected. Those who have already made investments will be affected the most as compared to others who are yet to open the mines.
Jindal Steel and Power Ltd. (JSPL) and Hindalco Industries were likely to be affected the most, said analysts.
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On Monday, JSPL shares closed with a loss of 14 per cent. Hindalco plunged 9.56 per cent to close at Rs.164.65 on the BSE. Tata Steel shares closed with a loss of 4.79 per cent. Reliance Power was down 4.07 per cent.
Officials of Aditya Birla Group of which Hindalco is a part were not available for comment. JSPL also preferred not to say anything. “We are not in a position to comment as we are currently evaluating the SC judgment and the implications for JSPL,” a JSPL spokesperson said.
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Among unlisted companies, Essar Power and Bharat Aluminum Company (Balco) are also likely to be affected. Balco had recently announced plans to extract coal from its mine and now with this development, its plans will be delayed, analysts said.
It is believed that companies which have already started production from mines may have to pay a fine for regularisation of their licences, and those yet to produce coal may end up either losing their licences or made to pay exorbitant price as per the market rate, they added.
“The impact will depend on the cost at which the power producers will source alternative coal. The power tariff will be under pressure and consumers may have to pay more for power. The companies which are into pure mining operation will suffer grievously as they will lose money and reputation,” said Shailesh Haribhakti, Chairman, DH Consultants Pvt. Ltd.
The final outcome will be known only after September 1. The SC may appoint a committee that will decide what should be done and it may take time. Till that time, uncertainty will continue, and it would further confuse foreign investors.
“The judgment conforms to the findings of the Comptroller and Auditor General (CAG) on the coal mine issue. It is still not known whether the mines will be de-allocated or the beneficiaries will be let off by paying a steep fine. In any way, it is a negative for the companies in question,” said an analyst tracking the power and metals sector.
The coal blocks, which were allocated to ultra mega power projects (UMPPs) on the basis of tariff-based bidding, will not be de-allocated, but the companies will not be allowed to sell coal commercially to third parties or transfer excess coal to other plants.
The apex court said such companies could only use the coal for power generation purpose. Going by this, Reliance Power’s Sasan UMPP will be affected as the company was allowed to divert excess coal to its other project to be able to sell power at Rs.1.19 a unit. Now this project may be unviable. Reliance Power did not offer any comment.
However, some companies such as Adani Power and JSW Energy which fully depend on imported coal may benefit from this development as they could get some mines through fresh bidding process.