SC VERDICT ON COAL - BOLD AND APT

By Ruma Dubey

It was a bold decision of the Supreme Court. Cancelling 214 coal blocks allocated over the past two decades, is most certainly a tough verdict.  But it sent out the perfect message – no more squandering away our national resource while ushering in transparency and good governance.

And the companies which would be hurt the most – Jindal Steel, Essar, GMR Infra, Hindalco, Usha Martin, Tata Power, CESC, Jayaswal Neco, Monnet Ispat, Sarda Energy, Prakash Industries.  Four blocks of the total 218 allocated were lucky and they got cleared – NTPC, Reliance Power (2 blocks) and SAIL stood to gain. The 214 cancelled blocks which got the go-ahead since 1993, have six months breather time shut down the operations.  Thus 31^st March 2015 is the deadline.

Naturally, India Inc is very upset as this carries with it a lot of collateral damage. Projects dependent on coal – power, steel, cement will all face tough times. But this is not something out of the blue kind of a thing. There were clear enough indications already given that the blocks will be cancelled. And banks will suffer NPAs due to their lending to these sectors? Yes, they will but they too, like these companies deserve a kick for turning a blind eye when it came to companies plundering national resources while they made money on the sly.

If anything else, India Inc and we the people of India should actually cheer as this is a verdict which fights one of the biggest corruptions of our country. The nation has been cheated out of $33 billion while some are making merry, turning into multi billionaires. So this uprooting, right from the tuber is the right way to move – we have turned a blind enough number of times to numerous scams. If there is finally a verdict which attempts to correct that which is wrong, right from the word ‘go’, why not?  When cleansing begins to happen, toxins get exfoliated, there will be pain. But at the end of it, the squeaky clean picture which emerges is totally worth it. If India Inc is indeed determined to weed out corruption, this much they have to bear.  In fact they are also a part of this weed and maybe this is time for them to also know that the Court’s in India work and things, despite all the money that you have, could go wrong, rather the way in which it should.

The good news is that at least the uncertainty has come to an end. Companies can now look for new auction rules, which are sure to be announced soon.  It’s good that finally we are doing away with the selective allocation process, which was rightly ruled by the court as illegal and arbitrary.  And this entire hullabaloo for what? Of these 218 blocks, only some 40 blocks are as such producing coal and that too at a capacity of 9% of the 566 million tonnes of coal which was mined last fiscal.  India has the fifth largest coal reserve in the world and we remain the third largest coal importer. This means, despite these allocations we were as such importing coal, the imports will only burgeon further. The good news here is that coal prices have been low for the past three months and that, for once, goes in our favour.

A quick look at the good and bad of this verdict.

First, THE GOOD:

• It ends decades of decadency, corruption.
• Supreme Court shows crime will not always pay; you do get caught on one time or the other!
• It will bring in the new auction route of coal allocation which will be more transparent and adheres to good governance practices.
• Six-month time frame should ensure that the impact on coal imports and current account deficit will be marginal.
• Companies may cry foul but the fact remains that some of them will be fined heavily – totally to the tune of about $1.2bn.
• Affected mines could be handed to state-backed mining group Coal India before being re-auctioned
• The best part – it presents a far cleaner slate on which the government can begin a new policy, in which everything will be re-auctioned.
• It’s a victory against rampant corruption and crony capitalism.
• The uncertainty over this long drawn fight is finally over – companies now at least know where they stand and how they need to move ahead.
• The economy will not come to a standstill – power, steel and cement companies knew about the ongoing investigation into Coalgate scam; they are sure to have made alternate arrangements.

THE BAD:

(These are bad because this decision is bound to have repercussions and companies are sure to moan about bringing this arrangement to an end.)

• Auction will be the best option but it will be time consuming and cannot happen till beginning of next fiscal.
• Collateral damage, apart from user industries will hit several banks who have lent to power, steel and coal sectors – SBI, PNB, Canara Bank and PFC.
• Mines affected could be handed to state-backed mining group Coal India before being re-auctioned – this makes Coal India into a bigger monopolistic player than it already is.
• Hefty fines have been imposed on companies; hardest hit is Jindal Steel, which will have to shell out approximately Rs.3000 crore, Hindalco fine is around Rs.500 crore, CESC and Sarda Energy around Rs.800 crore.

Well, really no sympathies for the companies. They all made merry when the going was good and now they pay a price for directly or indirectly adding fuel to the fire of corruption.  Assocham said that the ruling was a “bit harsh”. Really?

It all now depends on how fast the Govt can act on this verdict and come out with the auction process as soon as the 6 months end.

Markets will sulk and howl over this verdict but that’s how any capitalist will react.