Government De-allocates A Total Of 11 Coal Blocks So Far

The Inter-Ministerial Group (IMG) is meeting on a daily basis to discuss the status of the coal mines that were allocated to the metal and power companies. The IMG will scrutinize a total of 58 blocks that got show-cause notices earlier in the year by the coal ministry. The IMG has so far recommended de-allocation of 11 blocks and deduction of bank guarantee in cases of 14 others. Of the total 58 blocks till now, IMG has already de-allocated 7 coal blocks and the meeting is going on for reviewing the other blocks. And the recent one was announced yesterday wherein IMG de-allocated two more coal blocks. As per the Media reports the two coal blocks are -- Bhaskarpara, allotted to Grasim Industries and Electrotherm and Dahegaon Markardhokra IV, given jointly to IST Steel & Power, Gujarat Ambuja Cement and Lafarge India.

The panel is scrutinising a total 29 out of 58 cases that were served show-cause notices for non-development of mines during the prescribed timeline. And out of the 28 mines, the initial seven coal blocks that have been de-allocated belong to Bhushan Steel, JSW Steel, Tata Sponge, SKS Ispat, Castron Mining Ltd, Field Mining Ltd and Ispat. Further, the government has also approved deducting the bank guarantee (BG) in case of five mines out of the total eight recommended by the IMG so far.

On a case to case basis, the New Patrapara block of Bhushan Steel has been de-allocated and its bank guarantees have been forfeited by the government for not meeting the milestones of exploring captive mines. Bhushan Steel in January 2006 was allotted the New Patrapara block in Odisha. The block has a total reserve of 316.09 million tonnes. The coal block was mainly for making sponge iron in its upcoming 2.5 MTPA steel project in Odhisa which is expected to get commissioned during FY13. The de-allocation of the block will certainly have an impact on the company’s plan to have a backward integration for its upcoming facilities. The block was also mentioned in the CAG report which had estimated that the company got undue benefit to the tune of Rs 9,300 crore. The other two companies are Tata Sponge (Radhikapur Block) and Usha Martin (Lahori Block) which will also have to forego the bank guarantees for not meeting the deadlines of exploring captive mines.

Earlier, IMG has de-allocated coal blocks allocated to Jindal Steel and Power Ltd and had withdrawm the bank guarantee given by the company for the Jitpur coal block.  The government has also deallocated the mines of JSW Steel and its JV partner EMTA Power Ltd. JSW Steel’s de-allocated coal block is located in West Bengal where JSW Steel has planned to set up a greenfield steel project with the total capex of Rs 40,000 crore. However, the move by the IMG did not have any impact on the stock price of JSW Steel and it was trading higher. The de-allocated coal block was for the proposed steel plant in West Bengal which is at the very initial stage of development. The company has spent Rs 400-500 crore for land acquisition. This also means that if the coal block was developed it would have only contributed later by 2017-18.  Therefore the de-allocation of mines will not impact JSW Steel in the short run.

We believe the IMG is meeting on a daily basis to review the coal blocks and will continue to de-allocate more coal blocks in the coming days.