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Business News/ Politics / Policy/  HC ruling on end-use qualifications of 2 mines may hit coal blocks sale
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HC ruling on end-use qualifications of 2 mines may hit coal blocks sale

Delhi HC quashes end-use norms for coal mines previously allotted to JSPL after it complains government arbitrarily changed rules through a notification

The court also ordered that Utkal B-1 and Utkal B-2, which the government had merged, be de-merged and taken out of the auction. Photo: HTPremium
The court also ordered that Utkal B-1 and Utkal B-2, which the government had merged, be de-merged and taken out of the auction. Photo: HT

New Delhi: A ruling on Wednesday by the Delhi high court threatens to jeopardize the government’s auction of coal blocks and could potentially create a crisis in the power and metals businesses.

The judgement could, at the least, ensure that mines that were previously classified as reserved for power (or metals) remain so even after the fresh auctions which were necessitated by a Supreme Court order last year that cancelled most captive allotments of coal mines to power and steel companies since 1993.

The re-classification of the mines, which has happened in some cases, means that a previous owner who built an end-use plant (a power plant or a steel one), then had the coal mine allotment cancelled, and was hoping to rebid for the same mine, is not eligible to do so.

On Wednesday, the Delhi High Court quashed the so-called end use norms for coal mines for two blocks previously allotted to Jindal Steel and Power Ltd (JSPL), after the company complained that the government had arbitrarily changed the rules through a notification after the coal ordinance was issued last year.

One of the two blocks—Utkal B-1 in Odisha—is among the 65 blocks put up for auction. The other, Gare Palma IV/6 in Chhattisgarh, is yet to be put on the block. The court also ordered that Utkal B-1 and Utkal B-2, which the government had merged, be de-merged and taken out of the auction.

Utkal is a so-called Schedule III mine.

Coal secretary Anil Swarup said the ruling will not affect the auction process.

“With respect to the high court order pertaining to the JSPL blocks, the technical committee will be reviewing the concerned blocks as per the direction of the high court. However, it will not impact the auction process because the blocks under consideration of the court don’t belong to schedule II," Swarup said in a telephone interview.

Schedule II coal mines are those mines which were operational at the time of the de-allocation and the Supreme Court had permitted the continuation of their operations by the prior allottees up to 31 March. However, this deadline does not apply to the Schedule III mines that were nearly operational when the allocations were cancelled.

In a 73-page judgment, a bench of justices B.D. Ahmed and Sanjeev Sachdeva held that the guidelines and directions provided by the preamble of the coal ordinance 2014 “have not been kept in mind by the Technical Committee while merging Utkal B-1 and Utkal B-2 and while specifying the end-use—“Power" for Utkal B-1, B-2 and Gare Palma IV/6".

Regarding Utkal B-1 and B-2, the bench directed that the issues of their specified end-use and their merger be reviewed before they are put up for auction again and held that “the same, as regards specification of end-use, would apply to Gare Palma IV/6, which is yet to be put up for auction".

A government notification on 18 December that followed the ordinance changed the end use of Utkal coal from sponge iron to power and Gare Palma coal from power to sponge iron, according to petitions filed by JSPL and its chairman Naveen Jindal.

During the proceedings, JSPL argued this change was “arbitrary and contrary" to the coal ordinance. It also argued that the ordinance does not give priority to the power sector, but that the government had done so through its notification. JSPL argued that as of 30 September 2014, it had invested 19,016.14 crore on the end use plant and 138.11 crore on the development of the Utkal B-1 coal block.

Attorney general Mukul Rohatgi, who appeared for the government, had earlier told the court that entertaining these pleas would “result in stunting the entire auction process undertaken subsequent to Supreme Court verdict (cancelling the coal block allocations)".

The government had argued that the end-use specified in allotments before the Supreme Court judgements cancelling the auctions became irrelevant for the purpose of future allocations and that the centre adopted a policy prioritizing the power sector and that mines having larger reserves and lower quality coal were earmarked for power and those having lower reserves and higher grades of coal were set apart for, inter alia, steel.

The court also took into account the concerns raised by the ministry of steel about the negative impact the change of the end-use would have on the steel sector, which were rejected by the technical committee.

Rejecting the stand of the government that the coal ordinance gave the power sector priority, the high court held that all the core sectors have been placed on par in the ordinance.

As a result, it has held that “the Central government can specify an end-use for a coal mine, different from its earlier end-use, but this does not mean that it can completely ignore the earlier end-use and arbitrarily specify a new end-use".

The court has also laid down the guidelines for specification for an end-use for a coal mine. According to the court, the allocation has to be made keeping in view the energy security of the country and for promoting the optimum utilization of coal resources. Secondly, the allocation has to be such that it minimises any adverse impact on core sectors, such as steel, cement and power utilities.

“We welcome the decision of Hon’ble High Court and are optimistic that the technical committee will consider the merits for end use of coal blocks as envisaged earlier. JSPL has already invested in excess of 30,000 crore in setting up end-use plants in Odisha and Chhattisgarh based on Utkal B-1 and Gare Palma IV/6 mines, respectively," said a JSPL spokesperson.

The government’s efforts to reauction the blocks quickly—the scrapping of the licences had created a mini-industrial crisis—is driven by “good intentions" but could result in “litigation", said an expert. “Issues around written-down value, pricing of land and compensation need greater deliberation to arrive at fair values for all stakeholders. Schedule III auctions could have been done subsequent to Schedule II mines auctions which could have incorporated the learnings from this process," said Sambitosh Mohapatra, a partner (power and utilities) at PricewaterhouseCoopers in India.

In a related development, the Delhi high court issued notice to the central government in a petition by Bhushan Power and Steel Ltd challenging the tender process for allotment of coal mines. Lawyer P. Chidambaram, appearing for Bhushan, argued that the two-stage bidding process which would eliminate 50% of the bidders after the first stage is arbitrary and the second stage does not serve any purpose.

The case will come up for hearing on 18 February.

Utpal Bhaskar and PTI contributed to this story.

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Published: 11 Feb 2015, 07:16 PM IST
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