court's coal block ruling may have wider economic impact
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[August 26, 2014]
By Abhishek Vishnoi
MUMBAI (Reuters) - A mass
cancellation of Indian coal blocks awarded since 1993
could cost the country up to $3 billion in additional
imports and hurt financial firms that have lent to the
sector, broking firms said on Tuesday.
India's top court ruled on Monday that the allocation of more than
200 coal blocks at the center of a cronyism scandal was illegal. The
Supreme Court is due to decide on Sept. 1 whether to cancel the
allocations, or to impose some sort of penalty.
Shares in resource stocks fell further following a broad sell-off on
Monday after the ruling, which jeopardized projects built around the
blocks and threatens to exacerbate a shortage of the fuel.
"The ruling creates uncertainty and has to be resolved quickly. I
hope the Supreme Court gives a clear roadmap in September," said
Samir Arora, a fund Manager at Helios Capital in Singapore.
The government's awards of the blocks to steel, cement and power
companies has been at the center of a scandal Indian media has
dubbed "Coalgate", with an auditor report in 2012 saying the
underpriced sales had cost the exchequer up to $33 billion.
Analysts said a mass cancellation of the blocks would be a
worst-case scenario and add to a shortage of coal for power plants.
Coal is used to generate more than two-thirds of India's
Macquarie estimated in a note that complete de-allocation of the
coal blocks would increase India's import bill by $3 billion.
De-allocation could also impact financial firms, Credit Suisse said,
with companies such as State Bank of India and Power Finance Corp
Ltd lending some $10-$12 billion to the coal, power and steel
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Jindal Steel and Power Ltd shares fell as much as 8.1 percent, after
falling 13.9 percent on Monday, while Tata Power Co Ltd fell as much
as 4.6 percent. Some other firms rebounded, with Hindalco edging up
after a 9.7 percent fall in the previous session.
Macquarie urged investors to wait for more clarity to emerge.
"The government will impress upon the Court about coal shortages,
power cuts and derailment of the investment process," it said.
Power and Coal Minister Piyush Goyal said on Monday he looked
forward to a resolution of the issue, which has kept the sector in
limbo for several years.
The uncertainty surrounding the allocations has made it difficult
for firms to develop the coal. Dipesh Dipu, partner with Jenissi
Management Consultants, said only 30 of the blocks are operational
with annual capacity of about 40 million tonnes.
India produced 565 million tonnes of coal in the year to March 31.
(Writing by Rafael Nam; Editing by Richard Pullin)
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