Investments worth $1 billion may be wasted, says industry body

The de-allocation of coal blocks awarded to sponge iron manufacturers may result in investments of more than $1 billion going down the drain.

Besides, many companies have integrated the sponge iron plants with downstream manufacturing facility taking the total investments to $4-4.5 billion.

“Already there is scarcity of iron ore and now, if coking coal blocks are taken away, all investments would be wasted. The whole industry would come to a standstill,” said V.R. Sharma, Chairman of Sponge Iron Manufacturers Association (SIMA).

The Government has asked mine owners of 61 coal blocks, of which around 21 are from the sponge iron industry, to submit their status report on developing the assets by February 5. A decision on de-allocation would be taken based on the progress on forest and environment clearances.

“The forest and environment clearances are given by the Ministry of Environment and Forests, which is a Government body. There is no independent agency doing the job. How can they blame block owners for something which is not cleared at the Government’s end?” asked Sharma, who is also Deputy Managing Director and CEO (steel business) of JSPL.

The coal block owners, who face de-allocation, are of the view that companies who have voluntarily defaulted should be treated differently from honest companies.

The bone of contention is over the ‘letter of allocation (LoA).’ The Government is of the view that until the block owner has received the ‘mining lease,’ it has no claim over the asset. The mining lease is offered only after all forest and environment approvals are obtained.

But, the companies say that LoA is a “bankable document and cannot be equated with a mere piece of paper creating no rights or liabilities”.

The Government has a mechanism for processing applications for grant of coal allocations. This mechanism, which has been in place from 1993-2008, has not been challenged so far. So how are honest companies that followed the procedure at fault, said another industry official. “De-allocations should be considered on a case-to-case basis and a special committee can be constituted, which can look into all allocations and submit its report to the court,” he added.

Blocks are at advanced stages of clearances: Essar

The Essar Group said that the blocks allocated to the company are at advanced stages of receiving environmental clearances.

“Essar Power has been allotted the Mahan block in Madhya Pradesh and the Chakla and Ashok Karkata coal block in Jharkhand in 2006 and 2007 following due process of law laid out by the Government, which included written submissions and presentations to a Screening Committee set up by the Government to evaluate and consider applications received from companies for allocation of coal blocks for their respective end use projects,” a company spokesperson said in response to a Business Line query.

“While Mahan is in advanced stage of receiving the stage II environment clearance, Chakla and Ashok Karkata are in advanced stages of receiving stage I environmental clearance,” the official added.

(This article was published on January 20, 2014)
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