Coal Blocks Cancellation May Push Current Account Deficit Up $700 Million: SBI

New Delhi: The Supreme Court's decision to cancel coal block allocations may have a "marginal" impact on current account deficit and net burden on the deficit would be an additional $700 million, according to an SBI report.

Current account deficit is likely to get hit by additional coal imports. However, most part of the rise in import bill will be compensated by lower international oil prices, according to SBI's research report 'Ecowrap'.

During April-August 2014, the coal import bill has reached $6.9 billion and may reach up to $24.9 billion during the current financial year (2014-15), $8.5 billion higher than last fiscal year.

On the other hand, oil import bill would decline up to $7.8 billion this fiscal as oil price is expected to settle around $98 per bbl. Accordingly, the "net burden on CAD (current account deficit) will be an additional increase of $0.7 billion", the report noted.

On September 24, the Supreme Court dealt a major blow to corporate sector by quashing the allocation of 214 out of 218 coal blocks that were allotted to various companies since 1993, in which it was claimed that over Rs 2 lakh crore were invested.

A bench, headed by Chief Justice R M Lodha, saved only four blocks - one belonging to NTPC and SAIL each and two allocated to ultra-mega power projects (UMPPS) - from being cancelled.

The bench granted six months breathing time to mining companies to wind up their operations in the coal blocks. The SBI research note added that the cancellation of coal blocks would impact power generation capacity and the investment climate.

"After the cancellation of coal blocks, the Government companies are not in a position to supply the required quantity of coal to power generation companies," the report said, adding that "power stations have a supply of less than one week of coal and therefore there are possibilities of power outages".

The report further said that "huge investments up to about Rs 2.87 lakh crore have been made in 157 coal blocks as on December 2012 and the judgment will give a temporary setback to the investment climate".

Going forward, a quick plan of action is required to ensure coal supplies are not disrupted for a longer period of time. Thereafter, we need a swift and transparent bidding process for reallocation, it added.