The Supreme Court’s decision to pronounce the terms under which coal blocks were allocated post 1993 as illegal is unlikely to disrupt operations of power players at the moment, says Vinayak Chatterjee, chairman, Feedback Infrastructure.
According to Chatterjee, the SC ruling is only one more impetus to clean up the system. The apex court has been cautious enough in not deallocating coal blocks and will take the decision on September 1, he adds. He urges investors not to trigger a panic reaction to the SC ruling. The market, panicked, in late trade on Monday post the announcement by the SC. If the apex court does de-allocate the coal blocks, it will have an adverse impact on the economy as it contributes to more than one percent of the GDP.P Pradeep Kumar, MD - Corporate Banking, at SBI adds to the discussion saying that the bank has around Rs 92,000 crore of exposure to the power sector and some of it is likely to get affected. However, agreeing with Chatterjee, he too believes market should not panic and wait for a final decision by the apex court until September 1.
Harshvardhan Dole of IIF also contributed to the discussion.
Below is the edited transcript of the interview:
Q: There was one analyst who told us that if the SC took its time to declare which mine can go on mining coal then probably we are looking at a loss of 1 percent of the GDP for the current year. What, according to you, is the first initial impact on the economy?
Chatterjee: I would urge that we don't get into any panic comments and panic reactions to the SC judgement. It has been known for quite sometime that the coal allocation process was being scrutinized, that everything was not above board. It is an old story. The SC has finally come up and said that from 1993 onwards it is not pleased with the manner in which this matter has been handled.
While it has given its point of view, it has also been cautious in saying or in not de-allocating any coal blocks. The SC is unlikely to disrupt operations. It is unlikely to do anything drastic that will affect production of the mines or its production to other sectors of the economy.
However, the judgement would seek to cleanup this sector. We must take the judgement for what it is worth and I don't think anybody largely would disagree with the spirit that the honorable judges have shared with the nation in their collective point of view.
It is a time certainly one more impetus to cleanup the sector to professionalize it. At the same time, there is nothing that is going to happen that will severely jeopardize ongoing operations.
Q: If you are a power company with a captive coal mine which was allocated to you after 1993, can you mine it from yesterday or should you just stop mining first of all?
Chatterjee: My understanding of the judgement in terms of people that I have spoken to is that there is nothing that says stop what you are doing today.
Q: But if they call it illegal so should that not be read as stop mining until further orders?
Chatterjee: It is my interpretation of it unless somebody has a different point of view which says yes we have taken a look at the procedures and processes and have question marks on their legality. That is not to say that as soon as the judgement comes out stop doing everything.
The market and entrepreneurs and developers in these sectors should not jump to any hasty negative conclusions. Business should carry on as usual and I am sure the honorable judges along with the government will see to it that there is minimum disruption to the economy, to the government and to production and I hope it pans out that way.Q: What is the exact quantum of loans that the entire banking industry has given to the power sector, what is the exposure that they have and particularly for State Bank of India (SBI) what could the damage be?
Kumar: I will not be able to tell you straightaway the exposure of the banking industry to the power sector. SBI has an exposure of about Rs 92,000 crore in power sector and most of these power projects are based on either imported coal or allocations from Coal India.
We have couple of projects that are dependent on coal being mined from the blocks allocated to them. We will have to take a call of what will happen to these companies, whether they will be able to get coal allocated from Coal India or whether it will be import coal, whether they will be able to pass on the cost we will have to analyse case by case. It is too early for us to take a judgement on this.
Q: Would Bhushan Steel now be forced to default on its loans? They have one allocated coal mine, have you looked at that case?
Kumar: It has been looked into but I will not be able to comment on individual cases right now._PAGEBREAK_Q: Do you think at this point in time any of that Rs 92,000 crore exposures could be jeopardized because you cannot mine coal or is almost all your plants dependent on purchased coal?
Kumar: Except three-four projects, none of the other projects are dependent on coal blocks that are allocated. In these projects also there is always a possibility of getting coal either from Coal India or imported coal.
We will have to access what impact this will have on the cost of production, how much of it will be passed through based on the PPAs they have because it will take some time for us to analyse all this and come with a conclusion. I don't think there is any need to panic. Yes some exposures will get affected but I am sure we will be able to come out with a solution for that.
Q: In the event that the SC asks, mining not be done till it resolves the cases on a case-by-case basis say appoints a court empowered committee, a central empowered committee (CEC) like it did in the mining ban cases in Karnataka and Goa, in that event will a large part of your loans get affected because in that case the entire ecosystem could get affected?
Kumar: I agree that if they say stop mining it may get affected but even in the three-four cases where we have exposure to coal blocks allocated, I don't think the mining has started yet. So they are still dependent on coal, they are buying either through e-auctions or import and that is why I don't think there will be immediate impact.
Q: How are you seeing this getting resolved immediately, do you expect that on September 1 or starting from September 1 the court will have a case by case resolution through a committee of judges or some other empowered committee? How might things proceed from September 1?
Chatterjee: Frankly, I don't know. We are all guessing, we are all speculating but my broad feeling is that with this judgement the courts will sit down with the government and between the executive powers of the government and the judicial point of view of the court, a way forward will be found.
There is nobody right now saying all that we want to do is destabilize the system. So let us not constantly hype this up to say that from September 1 there is going to be doomsday in power and coal mining. Let us take it as it comes. I do not think there will be great disruption. There will be a transition from an old system of allocating coal to a new system that is more transparent etc and in the meanwhile steps will be taken to see that business does not suffer.
Q: Do you think we are just coming to conclusions and just expecting drastic measures and such may not actually play out or do you think that this SC ruling has actually knocked the wind out of the sales of the power sector?
Dole: It has come as a jolt to the power projects that are already operational and where the mines have already started operations. It raises concerns over the cost structure of these projects which are up and running and moreover in sectors that are operating on cost plus model such as NTPC or GIPCL or couple of plants that are operating on cost plus basis, perhaps you can adjust to incremental cost.
In cases where plants have been set up specifically for using captive coal mine, the plants have been configured based on certain kcal of coal, I think the rebalancing will be very tough. So one has to see how exactly it will emerge during these hearings and what directive the SC issues going ahead. As of now, it is speculating on various scenarios that may not be helpful at this juncture.
Q: Did you speak to any of the companies themselves, is that their interpretation?
Dole: A lot of companies that we spoke to were in a process of consulting their legal experts. So based on the discussions that we had yesterday, they were in a situation of flux and they expected by September 1 a clear directive will be issued whether these are blanket complete halt of the mines or it is going to be case by case.
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