Sudiep Srivastava, petitioner in the coal block allocation case says that the 40 blocks under the government’s radar (not including the already deallocated ones) produce only 46 metric tonnes (MT) of power.
In an interview to CNBC-TV18, Srivastava says this capacity is less than 7 percent of the total power consumed by India and will only mean an adjustment of power production.“Besides, a deallocation doesn’t mean an end any suspension of production, it only means a change in the ownership of the block in focus,” he adds.Also read: Coal block auctions likely by end of current financial year
Srivastava says the deallocation will only mean an escalation of prices for Coal India, an escalation that cannot be passed onto consumers, thereby leading to a fall in windfall margins.
Debashish Mishra, senior director, Deloitte says the deallocated blocks scan be run on the ultra mega power plant (UMPP) model here on.
The Supreme Court will decide on the future of the illegal coal blocks tomorrow.
Also read: SC's final verdict on coal blocks unlikely tomorrow: IIFL
Below is the verbatim transcript of Sudiep Shrivastava and Debasish Mishra's interview with CNBC-TV18's Menaka Doshi and Senthil Chengalvarayan.
Menaka: If you could articulate for us what you think the impact will be on the economy the corporate sector and individual companies if the Supreme Court were to decide tomorrow or in a subsequent hearing that there should be a full scale de-allocation of all the allocated blocks?
Mishra: If there is complete de-allocation of all the allocated blocks then you are talking about 218 blocks which were allocated, 216 for power, cement, steel and all and 2 were coal to liquid projects.
Menaka: Some of those have already been de-allocated. So, let us not stick to the final figure, I am saying it is somewhere in the region of 170-180 allocations, what if all of those are de-allocated tomorrow or any subsequent day?
Mishra: Our earlier estimate was there were 30 mines which were already operating and 40 million tonne was the production. As per the last submission of government in the Supreme Court they are talking about 40 are operational mines. I don’t know the exact number what is the production going on right now but if you look at the 46 mines the government is talking about getting an exemption we are probably talking about 60-70 million tonnes of coal.
Menaka: In terms of economic impact have you worked out any numbers?
Mishra: Our back of the envelope calculation says that 60-70 million tonnes of coal can support around 14 gigawatt of power capacity.
Menaka: These are not operational power plants, are they?
Mishra: Many of the power plants are already operational. There are projects which are having tapering linkages, who are managing from Coal India's tapering linkage and they were hoping that they will have the production going in next 12-18 months and their own production would have taken over that.Menaka: Even if it is a fraction of India's power demand at this point in time it is an important part of our economy. We can't afford to have power go offline. So, how would you respond to the debate that any full scale de-allocation will have a deleterious impact on the Indian economy, on power production and therefore the entire economy by extension?
Shrivastava: Out of these 218 blocks 23 blocks were already de-allocated prior to filing of this petition by the government itself. So, there remains 195 blocks in contention.
During the course of hearing around 40 odd blocks were also de-allocated by inter-ministerial group because of non-development, because of the project proponents failed to achieve the milestones as prescribed and another 12 blocks which were allotted to UMPP are not affected by this judgement. So, the total number of blocks in contention dependant on the judgement of Supreme Court is around 140.
Out of these 140 blocks 40 blocks in production. They produced 46 million tonne coal in 2013 and 2014 which is less than 10 percent of the total coal CIL produced and less than 7 percent of total coal India consumed during the last year. The impact on economy is not going to in any negative terms only some adjustment would be required for the companies which are using captive coal blocks.
First of all we need to understand that de-allocation would not mean suspension of production. De-allocation would only mean change of ownership. These blocks could be given to CIL as an interim arrangement and could be auctioned subsequently. So, the production is not going to be hampered. Government can also put or Supreme Court can also put a condition that during this interim period the supply to end use projects dependant on these coal blocks would not be affected. Only the pricing has to be fixed as per the CIL price.
Senthil: How much will the pricing be affected by this? If you are talking about numbers going about as a total loss of USD 33 billion is what the CAG said.
Shrivastava: As per the assessment committee report submitted by government itself during the course of hearing they have stated only 5-6 percent of the total coal power generated is dependent on these coal blocks. So, the remaining 94-95 percent coal power producers are getting coal from CIL on linkage route that is on notified price or a small number of these power producers are getting coal from imports as their projects have been envisaged on the imported coal. So, the difference of Coal India price which is hovering around Rs 1000 per tonne with regard to power grade goal and the cost of mining in these coal blocks is around Rs 300-400 a tonne. So, this difference they have to bear. In my opinion it will create a level playing field in fact. All these power producers, 6000 power producers dependent on captive coal block are not having any long term PPA. They are selling power as a merchant power like any other power plant. So, there shouldn’t be any privilege class when the allotment has been declared illegal by Supreme Court.
Menaka: If was to sort of summarize that you are saying that the difference right now between the cost of power for the end use plant from such an illegally allocated block is about Rs 500 because they are getting it at Rs 500 whereas Coal India's linkage price is about Rs 1000 a tonne. So, the difference is Rs 500 that the end use plants stands to benefit by and you are saying don’t stop the power production just handover these operational mines to Coal India. Let Coal India continue the production and oversee it at least on an interim basis and allow the coal supply to continue to these end use plants wherever the end use plant is up and running?
Shrivastava: Yes.
Menaka: What it will essentially mean is only an escalation in price for the end use plant because Coal India should then charge the linkage prices and not the lower prices?
Shrivastava: This escalation will not go to consumer because these power plants are not having any long term PPA. So, there is no question of increasing price to the consumers. The only thing will happen that some profit margin, the windfall margin in fact not profit margin will come down.
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