Coal Blocks' Players May Have to Pay Rs 10,000 Crore as Fine: Crisil

With cancellation of 214 coal blocks, the players of operational units may have to shell out Rs 10,000 crore as fine, rating agency Crisil has said.

"Players who have operational coal blocks will witness a sharp decline in profitability post 2014-15, as they would have to substitute captive coal with imported coal which is about four times more expensive (as Coal India may not supply domestic coal to these players given its FSA commitments to the power sector)," it said in a statement.

In 2015-16, impacted players in the sponge iron and aluminum sectors are expected to witness a 900-1,000 bps and 300-400 bps decline, respectively, in operating profitability, it added.

A bench, headed by Chief Justice R M Lodha, quashed allocation of 214 out of 218 coal blocks alloted to various companies since 1993. The four blocks saved from cancellations are one each of NTPC and SAIL and two mines allocated for Ultra Mega Power Projects.

"For these cancelled blocks, the court granted six months to shut down operations. Moreover, players with operational blocks have been asked to pay a penalty of Rs 295 per metric tonne of coal mined up to 2014-15, which will translate to Rs 100 billion (Rs 10,000 crore)," it said.

Of the 218 coal blocks allotted so far, only 40 blocks have been commissioned as of 2013-14, with a production of 39 million tonnes, it said.

The statement added that the impact of de-allocation of operational coal blocks on 7-8 GW of linked power projects will be limited as these operate under a fixed return model.

"Moreover, we expect alternate domestic coal supply (albeit at a higher price as compared to captive coal) to be provided to these projects as most of them are operated by state-owned utilities," it said.

"We expect the power purchase cost for utilities to rise, particularly in West Bengal and Punjab, where it would increase by Rs 0.5-0.8 per unit given that these plants account for a large share of power purchase," it added.

However, it said, at pan-India level, the impact would be negligible as these plants account for less than five per cent share of total generation.