The Supreme Court of India has cancelled 214 of the 218 coal mining licences awarded by the government between 1993 and 2010.

The country’s highest court on Wednesday said almost all coal blocks allotted since 1993 were granted illegally, calling for the return of control the blocks in a decision that could aggravate a coal shortage in the country, analysts said.

According to the verdict, out of the 214 blocks, 172 have been cancelled immediately, while the remaining 42 blocks will be cancelled by March next year after they complete their operations.

Investor uncertainty

The cancellation puts at least $47 billion of investments in such industries as power, steel and aluminum at risk, said Ashok Khurana, director general at the Association of Power Producers.

“It does create uncertainty in the mind of an investor,” he said. “He will think that even after 10,15 or 20 years, a court may strike down the policy on which he [based] his investment decision.”

Fate of coal blocks

The cancellation will take effect in six months for 42 blocks that had begun production, to ensure that coal supplies aren’t affected as the government decides what to do with the licenses.

It is likely that some will be auctioned while others will remain with state-owned or state-run companies, analysts said.

In addition, the court also ordered firms, which were allocated coal blocks but did not operate them, to pay compensation to the government for the loss of exchequer and
ordered affected companies to pay $4.83 a tonne for all the coal mined since 1993.

Illegal allocation

Last month, the Indian Government identified 328 coal blocks allocated during the period and found that 218 of them were allocated illegally to both private and government firms without performing competitive bids.

Only four out of the 218 have been saved. These include two allocated to Reliance Power and a block each given to NTPC and the Steel Authority of India.

The apex court has now given the central government six months to improve the coal allocation policy.

The cancellation could affect India’s power sector, as a majority of the affected blocks account for a tenth of the annual coal output in the country.

Additional Reading?

Request Free Copy