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IMG decisions on coal: What should be considered for the future?

The successful allottee of the coal block should be made to pay the cost of coal mined to the Government of India in lieu or in addition to the loyalty, as coal is a natural resource belonging to the people and not the allottee on a “free of cost” basis
The verdict is out, at least for the first four out-of-turn coal block allottees. They have lost it forever! Unless, of course, someone in this lot tries to use legal course of action for reinstatement!
There are many others in the line of fire; some are ducking behind the cumbersome formalities and clearances that are considered as “stumbling blocks”, but which are now their saviours, as the axe has not fallen. Perhaps, they a little respite, a time to breathe!
Chances are that the IMG (Inter-Ministerial Group) may seek another 15 days extension to complete its hearings before it can pronounce a final judgment. After all, many of the allottees got the blocks years ago and two weeks is too short a period of time to make any judgment for the whole lot out there.
Outsiders do not know the nature of the investigations that the IMG must have made, and yet it did a thorough job before coming to any conclusion for the first four who have lost their blocks.
Anyway, this raises several questions. Looking at things positively, what should the IMG do when it comes to those allottees, who, by virtue of their actual compliance of various stipulations, can be deemed to have shown or performed their part of the obligations, but are actually at the mercy of State and MOEF ministry of environment and forest) officials who are actually the stumbling blocks?
Such a question leads us to ask if and whether both related State and MOEF officials were also subject to similar grilling that the individual allottees went through? Were they present on a face-to-face basis to answer charges and counter claims? In the absence of one or the other, the final outcome may not be as fair as one would expect.
In any case, those of the de-allocated apparently did not have any credible defence but to lose their opportunity of a life time. As for the successful ones, that would soon emerge, what are the expected IMG recommendations, considering the mined coal from these blocks as “national wealth”?
It would be fair to think that they would have to comply with the following requirements, in general:
a) a time-frame within which mining operations should start  
b) proof of financial and technical ability to do so
c) that the coal block allotment is not a free gift to the allottee as originally envisaged
d) that an expert committee, drawn from the industry (coal miners in actual profitable operations), technical experts to assess the thermal calorific value of coal mined at specific sites in question
e) audited figures of the unit cost of coal of the same quality for the previous 2-3 years (or more) and the matching internal price from reliable and ascertainable sources to be obtained, which will determine the cost of coal at pithead
f) an audited cost of coal production for each such mine
g) based on the above data and any other similar information that the government or IMG may decide, the successful allottee of the block will have to PAY the cost of coal mined to the Government of India in lieu or in addition to the loyalty, as may be determined by them.

In other words, coal obtained from these mines would not be FREE, as the same is a natural resource belonging to the people and not the allottee on a “free of cost” basis.
Such a move would have far-reaching ramifications on the national wealth and its usage, and prevent unscrupulous methods of acquisition at the cost of the exchequer.

(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce and was associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US. He can be contacted at [email protected].)


Coalgate: Big losses for shareholders of coal companies

Among the companies involved in the coal block allocation scam, there are several listed companies whose share prices were driven by euphoric foreign investors, have now crashed. Here is a summary report

The indiscriminate allocation of coal blocks in the wake of adverse report by Comptroller and Auditor General of India (CAG) has stalled the Parliament’s Monsoon Session. The opposition has called for cancellation of the allocated coal blocks summarily and has demanded the prime minister’s resignation. Four blocks have been de-allocated today by an Inter-Ministerial Group (IMG). The opposition has sought the resignation of Naveen Jindal who has been allocated several blocks, and action against others who have been named by the Central Bureau of Investigation (CBI) for alleged irregularities. All attention has been fixed on big names like Jindal Steel, which cornered a large chunk of coal and iron ore mines over the past few years with the active connivance of chief ministers of several resource-rich states. Several of the coal allottees are listed companies. Their stocks had run up hugely in 2006 and 2007 in anticipation of the big money that the companies would make. These stocks were actively chased by foreign institutional investors (FIIs). Where are these now? Here are their stocks charts which tell the story of resource boom and bust, for which FIIs were more responsible than retail investors.


Adhunik Metaliks Ltd

Adhunik Metaliks (AML), is an alloy, special and construction steel manufacturing company, having an integrated steel plant of 0.45 million tonnes at Sundergarh, Orissa, It has been allotted a captive iron ore mine at Keonjhar and captive coal mines at Talcher and Angul in Orissa. The company had been allocated coal blocks in 2006 and 2009 respectively. FII investment, which was around 6% of the total shares in 2006, doubled to 12% by 2008. Since March 2011 FIIs begun exiting the stock and their holding has come down from 13% to 6% as on June 2012. The stock shot up by more than seven times from a low of Rs30 per share in Aug 2006 to Rs230.55 in December 2007. The stock is currently trading around Rs28 per share, down 88% from its peak.

Electrosteel Castings Ltd

The company which has a manufacturing facility at Khardah (Orissa), Elavur (Tamil Nadu) and Haldia (West Bengal) is into production of ductile iron pipes, DI fittings and pig iron. It was allocated an individual coal block in 2005 at Jharia, Jharkhand, with a reserve of 231.22 MT (metric tonnes). In 2006, it was allocated a joint coal block with three other companies in North Karanpura, Jharkhand, with a total reserve of 923.94 MT. The stock which was trading at around Rs40 a share in 2006 and 2007 doubled and is now down by 80% from its peak more to Rs18. FII investments which had gone up to a high of nearly 13% of the total share capital in 2007 has come down to 4%. DII investment, which had peaked in Jun-07 to 22.55%, is now down by more than half to 9.66%.

Jai Balaji Industries Ltd

Jai Balaji Industries, which has five manufacturing facilities located in Durgapur and Raniganj in West Bengal, Durg in Chhattisgarh and a sixth unit that is being set up in Purulia, West Bengal, manufactures direct reduced iron, intermediary and finished steel. The company was allocated a coal block in 2008 for the extraction of sponge iron in Rohne, Jharkhand which is to be shared with Bhushan Power & Steel, JSW Steel. In 2009, they were allocated another joint coal block in Raniganj, West Bengal, with a total capacity of 229.5 MT. The stock which was trading in the range of Rs200 to Rs300 per share in 2009 and 2010 is now trading at Rs33 per share down by nearly 90%. From having negligible FII holding up to September 2009, the holding increased to 12% in the following quarter. However, from December 2011 the FII holding has dropped to 5% end of June 2012.


Jayaswal Neco Industries Ltd

Jayaswal Neco Industries, an integrated steel plant, manufactures steel for the automobiles, white goods, engineering and also makes ferrous and non-ferrous castings. Abhijeet Industries which is an offshoot of this group, which got coal blocks allotted to it, is being investigated by the CBI for misrepresentation in its bid to secure Chhattisgarh iron ore blocks. A case has been filed against the company for cheating and criminal conspiracy more than a month ago. In 2005, the group was allocated a coal block in Moitra, Jharkhand, with a reserve of 215.78 MT, and then another in 2006 in Mand Raigarh, Chhattisgarh, with a reserve of 107.2 MT. The stock of the company which peaked to around Rs55 per share in May 2008 is now trading at Rs10 per share, down 80%. DII holding which was as much as 30% in June 2007 is now down to 4.76%

Jindal Stainless Ltd

A part of the OP Jindal group, Jindal Stainless (formerly JSL Stainless) with manufacturing facilities at Hisar and Odisha is one of India's largest and the only fully-integrated stainless steel manufacturer.  Its product range includes ferro alloys, stainless steel slabs & blooms, hot rolled coils, plates, cold rolled coils and specialty products such as razor blade steel, precision strips and coin blanks. In 2005, Jindal Stainless was allocated a joint coal block with total 333.4 MT reserve along with JSW steel and a couple of other companies at Talcher, Orissa, for the use of power generation. The stock price doubled from near about Rs100 in 2005 to Rs235 in December 2007, the price of the stock is now around Rs73. The company has pledged nearly 98% of its Indian promoter capital as on September 2010. FII holding, which was as high as 21%, came down to 6% in December 2006. Surprisingly FIIs have gained interest in the stock again taking their holding up to 23%


Usha Martin Ltd

Usha Martin, the flagship company of the Usha Martin Group, is one of India’s largest and the world’s second-largest steel wire rope manufacturer. The company is into the manufacture of wire rods, bright bars, steel wires, speciality wires, wire ropes, strand, conveyor cord, wire drawing and cable machinery. The company has overseas manufacturing operations in Thailand, UK and Dubai. In 2003, the company was allocated the Kathautia coal block in Jharkhand for end use for sponge iron with a reserve capacity of 29.76 MT. Later in 2005, it was allocated the Lohari block in Jharkhand with a 10MT reserve capacity.  The stock shot up from around Rs16 in the start of 2005 to Rs135 in December 2007, a rise of 800%. The stock is now trading at Rs22 per share near the same price it was trading seven years back, down 85% from its peak. FII holding, which had been around 20% from March 2006 to March 2011, is now down to 13.58%.



anantha ramdas

5 years ago

These companies have a lot of explaining to do, and only further investigations will reveal if there were insider trading also!

That all said, the question before the public is what is to be done now?

In the wake of the findings of IMG and the investigations carried out by CBI, those who have committed illegal activities need to be punished, as no is above law. Satyameva Jayate should prevail. If some of the allottees have made reasonable and tangible progress, they may be given the chance to retain these blocks, provided they pay for it.

No free lunches any more from our national kitty, mines or granaries!

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