- POSTED: 25 Aug 2014 23:27
India's top court ruled on Monday (Aug 25) that all coal block allocations made by the government between 1993 and 2009 were illegal, throwing the already energy-starved country's power sector into turmoil.
NEW DELHI: India's top court ruled on Monday (Aug 25) that all coal block allocations made by the government between 1993 and 2009 were illegal, throwing the already energy-starved country's power sector into turmoil. The Supreme Court said there were "legal flaws" in the procedure for awarding the nearly 220 coal blocks in India, which relies on the fuel for two-thirds of its power generation.
The allocation of so-called "captive" blocks to private steel, cement and power firms for their own use has long been dogged by allegations of corruption. "The allocation of coal blocks (between 1993 and 2009) based on recommendations made in all the 36 meetings of the (government) screening committee is illegal," said Supreme Court Chief Justice Rajendra Mal Lodha. "There was no transparency and guidelines have seldom guided it (the committee)," the judge said.
Another court hearing will be held next Monday to consider whether the allocations should be cancelled. The new Bharatiya Janata Party (BJP) government, which took power in May, brushed aside suggestions the ruling could further fuel doubts about India's reliability as a place to do business. "The economy can now move forward rather than being cast in the shadow of uncertainty," junior power minister Piyush Goyal told reporters.
The Supreme Court said the allocation process suffered from "arbitrariness" and declared that "common good and public interest have thus suffered heavily". The auditor general charged in 2012 that governments colluded with companies to underprice coalfields at a cost of 1.86 trillion rupees to public coffers, and said the blocks should have been auctioned. Experts say that while the loss was large, that estimate may be too high.
Many blocks were awarded during under the Congress government, led by Manmohan Singh. It was ousted in May after a decade in power by the right-wing BJP led by Narendra Modi, who vowed to stamp out corruption. The scandal came to prominence under Congress although the BJP was also in power for part of the period cited by the court.
Shares of Jindal Steel and Power fell 14 per cent to 253.15 rupees while Hindalco plunged 9.6 per cent to 164.65, as investors worried about whether the firms would lose their coal blocks. Both companies are heavy users of coal from the blocks.
"The question is whether the court will simply levy a penalty against companies like Hindalco and Jindal or take away their licences," Alok Brara, publisher of leading Indian industry magazine PowerLine, told AFP. "If it's simply a case of penalties, people will deal with that, but if it's a question of auctioning the blocks, that could make things more complicated," Brara said.
In 2012, when Congress was in power, the Supreme Court cancelled 122 telecommunications licences sold at below-market fixed prices, causing upheaval in the fast-growing industry. Lawyer Prashant Bhushan, a key figure in the legal fight against the coal block allocations, called the ruling "historic". Some of the blocks are still lying idle, but mining is under way in others. The government has already seized back around 80 blocks because they were not being exploited.
India has one of the world's biggest proven reserves of coal but disarray in the sector means demand still outstrips supply. Fuel shortages routinely cause hours-long power cuts while hundreds of millions in the country of 1.25 billion are completely without electricity.
Separately, the Central Bureau of Investigation said it was set to drop a corruption case against billionaire industrialist Kumar Mangalam Birla and a former top bureaucrat in the coal ministry, P C Pareck.
The case involving the 2005 awarding of a coal block to Hindalco, part of the Aditya Birla conglomerate, had sent shock waves through India's business community as Birla is one of the country's most esteemed businessmen. "This would mean there is no finding of any criminal act," CBI spokeswoman Kanchan Prasad told AFP.