A mass cancellation of coal blocks awarded since 1993 could cost the country up to USD 3 billion in additional imports and hurt financial firms that have lent to the sector, broking firms said on Tuesday. The Supreme Court ruled on Monday that the allocation of more than 200 coal blocks at the centre of a cronyism scandal was illegal.
The Supreme Court is due to decide on September 1 whether to cancel the allocations, or to impose some sort of penalty. Shares in resource stocks fell further following a broad sell-off on Monday after the ruling, which jeopardised projects built around the blocks and threatens to exacerbate a shortage of the fuel. “The ruling creates uncertainty and has to be resolved quickly.
I hope the Supreme Court gives a clear roadmap in September,” said Samir Arora, a fund Manager at Helios Capital in Singapore. The government’s awards of the blocks to steel, cement and power companies has been at the centre of a scandal Indian media has dubbed “Coalgate”, with the Comptroller and Auditor General (CAG) report in 2012 saying the underpriced sales had cost the exchequer up to USD 33 billion. Analysts said a mass cancellation of the blocks would be a worst-case scenario and add to a shortage of coal for power plants. Coal is used to generate more than two-thirds of India’s electricity.
