Coalgate Verdict Could Trigger Reforms in the Sector: S and P

Published: 01st October 2014 06:31 PM  |   Last Updated: 01st October 2014 06:31 PM   |  A+A-


MUMBAI: Global rating agency S and P, which was the last to revise the country's sovereign rating outlook to stable last week, today said the recent cancellation of 214 coal blocks by the Supreme Court provides an opportunity for the government to reform the coal sector.

"The Supreme Court ruling could lead to an improved process for allocating coal mines and boost the supply of coal," S&P credit analyst Mehul Sukkawala said in a report.

Last week, the apex court had cancelled 214 of the 218 coal blocks allocated between 1993 and 2010 and were under probe, holding the allocation process as arbitrary, illegal, and resulting in unfair distribution of national wealth.

"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," said Sukkawala adding that it could also hurt the significantly improved investor sentiment following the change in the government earlier this year.

The report said the agency believes that a transparent allocation policy will play an important role in determining the profitability and strategy of coal consuming companies.

This, the report said 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 coal mines is likely to involve an auction, just as the government did for telecom spectrum. The government could also extend the solution for coal miners to the mining of iron ore, bauxite and other minerals. Doing so can help the country take a big step toward resolving issues plaguing the mining sector for the past few years.

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