SC judgment on coal blocks: How it will take toll on Indian economy

The Supreme Court on Wednesday cancelled the allocation of 214 out of 218 coal blocks which it had declared illegal. All these coal blocks have been allocated since 1993. The four companies which have been exempted are run by the Central Government with no joint venture with the private sector.

Though, the cancellation will take effect after six months, the ruling is set to affect several stakeholders, banking sector industries and also the consumers.

What the Supreme Court has said?

The SC said licences to the blocks were illegal and arbitrary, and a transparent process for their bids was not followed.

It said the Government can auction all cancelled blocks at the end of six months in March, 2015.

It also asked the companies running the coal blocks to pay a fine of Rs 295 per mega tonnne.

The apex court has accepted CAG's estimation of the loss.

The SC grants six months time to coal blocks which are already operational to wrap up their operations. It said after the stipulated period, the blocks will be handed over to State-run Coal India.

What are the implications of the SC verdict?

Impact on Banking sector

Along with the power companies, the banking sector will have to bear the brunt of the SC's verdict. Taking into account that banks' exposure to iron and steel companies till June 2014, stands at Rs 2.65 lakh crore, the verdict is going to have an impact on the banks which have given loan to companies affected by Wednesday's verdict.

According to reports, State-run lender IDBI Bank has close to Rs 2000 crore loan exposure to some of these companies. Moreover, banks' exposure to power companies, which too will get partly affected, stands at Rs 5 lakh crore.

The whole process could push up banks' NPA (Non-performing Assets) levels as many power projects could get stuck. (If the borrower is failed to make interest or principle payments for 90 days, the loan is considered as non-performing asset)

Impact on companies

The power companies could be the worst affected by the Supreme Court's judgment.

The companies which have already began production may have to pay a fine. Those who have not started production may lose the blocks or buy mining rights in a fresh auction.

Impact on consumers

All power companies who would have to pay penalties will further increase the tariffs to cover the damage. This will burden the consumers as they will end up paying more for the coal and electricity.

And at a time when global coal prices are falling, domestic prices are likely to rise.

Coal scam was brought to light by BJP MP Hansraj Ahir.

This move could also lead to the shortage of the electricity as the Supreme Court has granted six months time to the Centre to re-allocate the coal blocks. As the coal stock is already drying up at the power station, this will further hamper power generation.

The cost implication

The previous UPA Government had told the apex court that Rs 2.86 lakh crore worth of investments is at stake in this case. But, several media reports say that the estimate by the previous regime is highly exaggerated.

Who exposed the coal scam?

The scam has been brought into the open by BJP MP from Chandrapur in Maharashtra, Hansraj Ahir.
Ahir frequently requested details of coal mining to former PM but he never succeed. Finally he along with another BJP MP Prakash Javadekar requested CVC for an inquiry. Based on the report provided by them, CVC ordered a CBI inquiry.

Famous names involved in coalgate controversy

Former Prime Minister Manmohan Singh, who held the coal Ministry portfolio briefly in 2004 and then for almost five years between 2007 and 2012.

Ministers of State for coal like Dasari Narayan Rao, Santosh Bagodia, Cabinet Minister Shibu Soren.
Congress MP Vijay Darda and his brother Rajendra Darda.

Congress MP Naveen Jindal whose company Jindal Steel and Power got a coal field in February 2009.