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Import Dependency Supply side logjams reinforce the Indian irony of having an immense coal resource, yet recently rising to the third largest importer of coal as the only short-term solu- tion to an energy crisis. During April- September, domestic coal production amounted to 220 million mt, down 9 million mt from targeted levels, and imports during 2014-2015 were forecast by the government to rise 11% to around 150 million mt before moving to 200 million mt over the next two to three years. An inevitability of import dependency, the Indian government has yet to frame a pricing strategy for imported coal supplies to power plants. The pool price mecha- nism for averaging low-priced domestic coal and higher priced imported coal to arrive at sales price to power generators has been opposed by several power pro- ducers as well as CIL. Government-owned and managed power producers have opposed the pool price mechanism on grounds that their plants that operate with domestic coal would be disadvantaged since coal procurement price would go up, as with regulated pricing of electricity, they would be hamstrung in passing on higher coal prices to electricity consumers. The Court Clampdown At a time when the coal sector was battling growth pangs and regulatory hurdles, the biggest sledgehammer blow was dealt by the country's Supreme Court, which on September 24 ruled that all the 214 coal blocks allocated to various user industries in power, cement, steel, in private and government sectors since 1993 be can- celed and put up for auction after owner- ship of the coal resources is taken back within the next six months. The apex court ruled that "there was no transparency by the companies as well as the central government. On many occa- sions, guidelines have been breached, the approach casual and at times illegal." Of the more than 200 blocks the court remanded, only about 30 have been placed into operation accounting for only 0.5% of the total annual tonnage. The Indian government will now seek Supreme Court permission to extend the deadline for private companies to pay the penalty for coal already mined from the canceled blocks. The court had directed all companies whose coal blocks had been canceled to pay Rs 295/mt ($4.80/mt) of coal already mined by March 31, 2015, and would accrue the government revenues to the tune of $2.6 billion. The Impact The Indian court has effectively dealt a financial blow to its domestic coal busi- ness. Some of the biggest companies oper- ating in mining, steel, cement and power industries now face risks of losing coal assets and financial institutions are wor- ried about the huge loans provided to these sectors on assumption of coal sup- plies to their projects. Majors, such as Hindalco Industries, Tata Power, Bhushan Steel, Essar Power, Reliance Power, Lanco, GVK and ArcelorMittal, operating across pig iron, power, coal-to-liquid, cement and steel, have all lost coal blocks with their pro- jects linked to these coal assets in uncer- tainty and risk. Jindal Steel and Power Ltd. (JSPL) was another private sector major at risk. Its Utkal coal block with a reserve of about 148 million mt was linked to its steel pro- ject in the eastern Indian state of Orissa. Similarly, its coal block at Talcher also in the same region with reserves of 150 mil- lion mt had been allocated to the compa- ny for a coal-to-liquid project has been taken back, too. In a 2012 report, national auditor, comptroller and auditor general (CAG) said that allocation of coal blocks to large and small companies without auction had resulted in a $31 billion loss to the nation- al exchequer. In a corollary to the main ruling, the Supreme Court disallowed commercial mining and use of surplus coal for all- purpose other than captive use by ultra- mega power plants (UMPPs). This would impact other legal challenges pending involving Tata Power, Reliance Power and the government. In 2008, the then-government allowed Reliance Power to use surplus coal from its 4,000-MW Sasan UMPP for the compa- ny's 3,980-MW Chitrangi UMPP, which was challenged by Tata Power claiming diversion of coal was not in public inter- est. The case is currently pending before the Supreme Court. In yet another segment of the ruling, the Supreme Court said that mining enti- ties controlled by provincial level govern- ments would not undertake commercial mining nor enter into joint ventures for mining, effectively clamping down on sev- eral joint ventures of provincial govern- ment and mine, developer operators (MDOs). The government had allocated coal blocks to 29 states or companies con- trolled by them and several of them had appointed MDOs to undertake mining linked to supply dry fuel to steel and pow- er projects in the region. i n d i a n c o a l m i n i n g c o n t i n u e d November 2014 www.coalage.com 49 A dragline moves overburden while two electric shovels load coal at a major SCCL operation.