Coal ministry taking back 31 coal blocks from private firms over delay
The coal ministry is taking back 31 coal blocks allocated to private firms including the Tata group and Jindal Steel and Power over delays in developing them, jeopardising billion-dollar projects and inviting legal action.business Updated: Feb 19, 2014 17:06 IST
The coal ministry is taking back 31 coal blocks allocated to private firms including the Tata group and Jindal Steel and Power over delays in developing them, jeopardising billion-dollar projects and inviting legal action.
The recalls, coupled with delays in approvals for several large projects such as steel plants by POSCO and Arcelor Mittal in eastern India, renew concerns that the country will struggle to attract much needed private investment in the infrastructure sector.
The ministry, reviewing some 61 coal blocks allocated over the past decade that have not started production yet, announced on Tuesday it was reclaiming about half as companies have failed to meet milestones. The companies say delays in getting some government clearances hampered work on the blocks.
"The ministry has already sent notices to a number of companies about the de-allocation," coal ministry spokesman NC Joshi said on Wednesday. "Some others will be intimated soon."
The government periodically reviews the status of coal projects and has previously also reclaimed allocated blocks. The de-allocated blocks will be given to state-owned Coal India Ltd for the time being and may later be offered to new developers, Joshi said.
The Tata group, in partnership with South Africa's Sasol Ltd, was planning to invest $10 billion in a project to convert low-quality coal into oil starting 2018. The joint venture (JV) was to use coal from the North of Arkhapal and Srirampur coal block in Odisha.
The JV filed a petition in the Delhi High Court on Wednesday against the de-allocation, following which the court asked the government not to proceed with its move, a spokesman for the JV, Debasis Ray, told Reuters. A copy of the court order could not be obtained immediately by Reuters.
"To develop the block, the JV has been awaiting the mandatory prospecting licence from the government, which has not been issued till date and without which no action can be taken on the block," Ray said.
Jindal Steel too was working on a similar project in Odisha and had spent about $12 million out of total planned investment of $10 billion. The company, whose chairman Naveen Jindal is a member of parliament from the ruling Congress party, said it will also take the government to court for the decision to take back the Ramchandi block.
Jindal Steel was allocated the block in early 2009 for it to produce 80,000 barrels of oil per day. The Tata-Sasol venture was also planning to ramp up output to 80,000 barrels per day within a year from starting, a Sasol executive said in 2010.
"Jindal Steel opines that it is the most unfair decision. We'll challenge this decision in a court of law," a company spokesman told Reuters, declining to give a timeline by when the company will approach a court.
Rajani Kant Singh, the steel and mines minister of Odisha called the federal government's move "unfortunate" as it came at a time when "procedural maintenance was underway".
Jindal Steel's shares closed up about 7 percent on Tuesday. Investors were relieved that a big capital-intensive project was likely to be cancelled following the de-allocation, said Angel Broking analyst Bhavesh Chauhan. The shares fell 2.8 percent on Wednesday.
The Jindal Steel spokesman declined to comment on the fate of the coal-to-liquid project.
Chauhan of Angel Broking in Mumbai said that only a handful of companies whose coal blocks will be taken away have invested in the projects, which means there would not be much of an impact for investors.
Apart from the companies working on the coal-to-liquid projects, Adani Power Ltd is one of the large companies whose coal blocks will be taken back. An Adani spokesman could not be reached immediately for comment.