Coal block cancellations could trigger reforms, says S&P

The recent cancellation of coal block allocations by the apex court provides an opportunity for the government to reform the process of awarding coal mines in the country, according to Standard & Poor’s Ratings Services.

“The Supreme Court ruling could lead to an improvement in the process being adopted for allocating coal mines and boost the supply of coal in a country that faces a severe shortage of the fuel,” said Standard & Poor’s credit analyst Mehul Sukkawala.

“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. It could also hurt, the significantly improved, investor sentiment in India following the change in the government earlier this year,” said Sukkawala.

S&P believes a transparent allocation policy would 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 coalmines is likely to involve an auction, just as the government did for the 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 the country take a big step towards resolving issues plaguing the mining sector for the past few years, the report added.

COMMENT NOW