Home / Industry / Energy /  Coal blocks cancelled by Supreme Court to be auctioned

New Delhi: The government on Friday signalled its intent to auction coal blocks, ending both the uncertainty as well as speculation on the strategy to be adopted after the Supreme Court cancelled the allocation of mines between 1993 and 2010.

“All the coal blocks which have been cancelled...they are being put to auction in the course of the next three months. This is what the power ministry has informed us in the meeting," said G.S. Sandhu, secretary, department of financial services in the ministry of finance, after a meeting between the finance ministry, power ministry, bankers and power company officials.

At the same time, the power ministry will also approach the cabinet with a proposal to pool prices of imported coal and gas with domestically produced coal and gas. The move is expected to reduce the price and also resolve the fuel connectivity problem, freeing up more than 100,000 megawatts of power generation capacity that has been stuck due to various reasons, including fuel shortages.

All these steps, along with the power sector’s demand for special debt restructuring, are expected to protect the banking industry’s more than 5 trillion exposure to the power sector, Sandhu added.

“We are very hopeful that we will be able to salvage the loans. The power ministry will shortly go to the cabinet for pooling of imported coal with domestic coal and gas pooling. Hopefully, there will be some resolution on that," he said.

Last month, the Supreme court cancelled the allocation of 214 coal blocks awarded by the government between 1993 and 2010, introducing uncertainty about investments made in these projects and the bank loans extended to their developers. At the same time, the decision opened up an opportunity to streamline coal block allocations in a transparent manner.

Earlier on Friday, power minister Piyush Goyal assured investors that there will be adequate fuel available to power plants.

“We have complete control on the situation. Our plans are in place. There is no reason for anybody at all to be concerned, whether it is investors or power plants or steel plants. Any investments made in the country will be safe," he said.

“The banks have confidence with the government...I have had some dialogue with some of the banks. They have all gone back completely satisfied and reassured that there is nothing to worry, and this will be under control," Goyal said.

“I am confident that once appropriate measures are taken post the Supreme Court judgement and our efforts to increase Coal India’s production are in place, I hope to see a situation where the country will be exporting coal," he added.

On Friday, the finance ministry decided to set up a committee under S.B. Nayar, chairman and managing director of India Infrastructure Finance Co. Ltd, to look into the demands raised by power producers. The committee has been asked to present its report by 7 November.

“Once the committee submits its report, we will take up the issue with the coal ministry, power ministry and Reserve Bank of India (RBI)," said Sandhu. “If still some of the issues are not resolved, we will take it to higher level. We will go to the finance minister."

Power sector companies have requested banks to urge RBI to allow a special dispensation for loans made to the sector. They asked the government to address the adverse issues faced by them quickly, one of the bankers who attended the meeting said on condition of anonymity.

A special dispensation is restructuring outside the regular banking mechanisms like corporate debt restructuring where the whole industry loan is restructured and no additional provision is charged upon banks. The companies get more time to pay the loans, including, typically, a two-year moratorium on repayments, and the interest rate is reduced considerably.

Bankers are said to have assured the companies that each bank will individually assess the viability of the projects and see if a special dispensation can be sought from RBI.

Sandhu said the government will take up constraints faced by banks with RBI. “Banks are facing some constraints with regards to viability, extra funding, replacing equity with debt in some cases. RBI regulations are barring the banks from going forward," he said.

In the meeting, the Association of Power Producers made a presentation highlighting the problems faced by the industry. Issues discussed include projects affected by the coal block de-allocation, gas-based projects, power plants with no coal blocks, companies that are facing problems on the power purchase agreements (PPAs) and non-utilization of PPAs, and also companies to whom state electricity boards are not making adequate and timely payments, and the issue of last-mile financing.

Ananda Bhoumik, senior director at India Ratings, said these steps are a part of the efforts by the coal and finance ministries to get the assets back on stream after the Supreme Court judgement.

“A general dispensation for restructuring the loans may not be the optimal solution. And I don’t think that RBI may give that dispensation since they did not take any such steps for loans given for 3G spectrum auction," he said.

Aman Malik in New Delhi contributed to the story.

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