New Delhi: The inter-ministerial group (IMG) reviewing coal block allocations recommended the encashment of bank guarantees furnished by Tata Power Co. Ltd and Hindalco Industries Ltd, which had been allotted the Tubed coal block in Jharkhand in August 2007, two officials who attended the meeting said on Monday.
The two companies hadn’t responded to queries as of press time.
The encashment simply means that IMG is of the opinion that the companies haven’t met the performance commitments given at the time they were allotted the block and decided to penalize them. It is not a cancellation.
Officials said IMG will meet again on Tuesday to review more companies and their allocations. So far the panel’s recommendations have led to cancellations of five blocks and another two are likely to follow, said people familiar with the developments.
The five blocks that have been cancelled so far are the Gourangdih ABC coal block, jointly held by JSW Steel Ltd and Himachal EMTA Power Ltd; the Bramhadih block in Jharkhand allocated to Castron Mining Ltd; the Chinora and Warora (Southern Part) blocks in Maharashtra allocated to Field Mining and Ispat Ltd; the Lalgarh (North) block in Jharkhand allotted to Domco Smokeless Fuels Pvt. Ltd, and the Marki Mangli-II, III and IV blocks in Maharashtra allocated to Shri Virangana Steels Ltd.
Two more blocks are expected to be cancelled on the recommendation IMG made after its meeting on Saturday. These are the Rawanwara North block in Madhya Pradesh allocated to SKS Ispat and Power Ltd and New Patrapara block in Orissa given to Bhushan Steel and Strips Ltd jointly with Adhunik Metaliks Ltd, Deepak Steel and Power Ltd, Adhunik Corp. Ltd, Orissa Sponge Iron Ltd,SMC Power Generation Ltd, Sree Metaliks Ltd and Visa Steel Ltd.
“Till (the meeting on) Friday, whatever files have come to us, we have cleared them,” coal minister Sriprakash Jaiswal told reporters in his office on Monday. “This process will go on. The meetings of the IMG will continue.”
Jaiswal said that the “worst cases” were facing cancellation, whereas the “not so bad” were having their bank guarantees encashed.
IMG, comprising representatives of the ministries of law, steel, power and finance apart from the coal controller, is headed by Zohra Chatterji, additional secretary in the ministry of coal. The panel intensified a review of coal block allottees after a report by the Comptroller and Auditor General of India (CAG) that unleashed a storm, alleging a notional loss of Rs.1.86 trillion to the exchequer because of the allocations. It also said the allocations were made in an untransparent manner.
The panel is examining a list of 58 coal blocks, the owners of which were given show-cause notices earlier. It has so far covered about half of the ones that were allotted to private companies. Twenty of these companies under review are named in the CAG report.
The controversy over the allocations won’t die down with the cancellations, said Arvind Mahajan, head of the infrastructure advisory group at KPMG India.
“All these things will be subject to legal challenge since the government will have to provide a proper justification for penalizing these companies for non-performance,” he said. “The government will have to measure their performance against that of Coal India.”
Since Hindalco had not developed the Tubed block, the government’s move to encash its bank guarantee will not have any impact on the company, said Chintan Mehta, an analyst with Mumbai-based Sunidhi Securities and Finance Ltd.
“There has been no investment from Hindalco on the block, so there will virtually be no impact on the company,” Mehta said.
The ministry has so far ordered encashment of the bank guarantees of Gupta Metaliks and Power Ltd and Gupta Coalfields Ltd for the Nerad Malegaon block. It has asked Monnet Ispat and Energy Ltd to deposit a bank guarantee equivalent to three months of royalty and start production at its Utkal B2 block by March 2013.
“So far, from the files that have come to us, we know there is one company that had not given a bank guarantee,” Jaiswal said, referring to Monnet. “There could be more.”
It is also likely that the ministry will encash the bank guarantees offered by Usha Martin Ltd for the Lohari block in Jharkhand, Tata Sponge Iron Ltd for the Radhikapur East block in Orissa, and Bhushan Power and Steel Ltd for the Bijahan block in Orissa based on IMG’s recommendation.
The Central Bureau of Investigation is meanwhile continuing its own investigation into coal block allottees after booking five firms earlier this month.
Apart from that, the Supreme Court has issued a notice to the coal ministry asking for an explanation on the method of allocations, in what has opened a new front against the government.
Sources and documents reviewed by Mint show politicians lobbied for coal blocks to be given to certain companies even as several people in the government wrote to Prime Minister Manmohan Singh warning against the allocations.
“This was the best possible policy to boost coal production,” Jaiswal said in the government’s defence.