Court verdict on coal blocks could trigger reforms in India’s mining sector: S&P

SINGAPORE - Cancellation of coal block allocations by India's highest court could lead to an improved process for allocating coal mines and boost the supply of coal in a country that faces a severe shortage of the fuel, says Ratings agency Standard & Poor’s.

The Supreme Court has cancelled most of the 218 coal blocks allocated by the Government between 1993 and 2010. The court observed that the allocation was arbitrary, illegal, and resulted in unfair distribution of national wealth.

"We believe the cancellation of coal blocks increases near-term uncertainty for the operations and investment plans of companies that were either allocated the mines or were expecting to source coal from them," said S&P. "It could also hurt the significantly improved investor sentiment in India following the change in Government earlier this year."

The ratings agency believes a transparent allocation policy will play an important role in determining the profitability and strategy of coal-consuming companies. This, combined with a streamlined process for getting environmental clearances and approvals for land acquisition would give these companies the confidence to invest and revive their long-pending projects.

“A transparent process to allocate coal mines is likely to involve an auction, just as the Government did for telecom spectrum. The Government could also extend the solution for coal miners to the mining of iron ore, bauxite, and other minerals. Doing so could help India take a big step toward resolving issues plaguing the mining sector for the past few years.” www.standardandpoors.com (ATI).