Metals and Minings - New Coal Ordinance: A Partial Reform :: Edelweiss, PDF link

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As per media reports, the Government of India (GoI) has decided to pass an ordinance to address the coal situation post the September 2014 coal block de-allocation order by the Supreme Court (SC). This partial reform will: (i) give effect to the SC order; (ii) enable auction of coal blocks; and (iii) incorporate enabling provision for de-nationalisation of the coal sector (opening up for commercial mining). However, GoI has clarified that de-nationalisation is not immediately on the cards, which is a positive for Coal India (CIL). Besides, the 12% RoI to erstwhile mine owners (as per media reports) on their investment mitigates impact of the penalty imposed by the SC and likelihood of losing the mine in the proposed auction. The companies will also have the opportunity to bid for a wide spectrum of mines. However, the lack of Right of First Refusal (ROFR) is a negative, but was expected.

Key points of the ordinance: Only a partial reform

1. Auction of de-allocated coal blocks to commence in 3-4 months to end-use plants in power, steel and cement sectors; 2. No ROFR to erstwhile owners of captive coal blocks; 3.Only Indian companies allowed to bid. Companies convicted in coal block related court cases would not be allowed to bid; 4.Reserve price in auctions: Formula to be determined by a separate provision; 5.Enables compulsory transfer of land of deallocated mines; 6. Successful bidders in the fresh auction of coal blocks along with the land and plant standing on it would be liable to pay the earlier allottees cost of the land and plant along with 12% annual interest on the amount that was originally invested for purchasing the land and setting up the plant; 7.State government entities allowed to do mining, which the SC had quashed. The government dispensation route to continue; and 8.Proceeds from the auctioning process will entirely go to the respective state governments where the mines are located.

Enabling clause for de-nationalisation of coal, but no instant plan

The ordinance has an enabling clause which gives GoI the right to open up the coal sector to commercial mining. However, GoI has clarified that there is no immediate plan for de-nationalisation of the coal sector and opening it up.

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