Power, steel industries to be hit severely

Power, steel industries to be hit severely

Coal verdict: Cancelling mines will affect banks that gave out loans

Power, steel industries to be hit severely

Cancellation of coal blocks will severely affect projects in power, steel and cement sectors as well as banks, which have loaned huge sums of money over the years. 

Power sector will be hit badly as a whopping 28,000 MW generation capacity, in state as well as private sector, may be affected if the Supreme Court were to cancel coal mines that it has declared illegally allocated between 1993-2010, an official from the Power Ministry told Deccan Herald. 

“Mass cancellation of coal blocks also add to the shortage of coal for power plants,” the official added. Of India’s installed power generation capacity of 2,50,257 MW, around 60 per cent is coal-based. India produced 565 million tonnes of coal in the previous fiscal.

The Finance Ministry had earlier cautioned the government that if the coal blocks allotted were cancelled, it would hit several banks and 10 major corporate houses, with plans to generate 70 per cent of country’s power in the next five years. 

Among the banks that have fairly a large exposure to these business houses are State Bank of India (SBI), ICICI Bank and Punjab National Bank. 

Banks‘ exposure to capital intensive power sector is estimated at over Rs 3 lakh crore. “If the coal blocks allotted to power generating companies are  cancelled it would be a major blow to the banks which are already worrying about growing debt of the electricity generating companies”, said the official. 

The Supreme Court judgment has come at a time when power generating companies are already under pressure with the price of coal having shot up internationally. Besides, several newer power plants are struggling due to their inability to pass on the higher cost of fuel through tariff hikes. 

From 1993 till 2010, the Ministry of Coal has allotted 218 blocks to different sectors, including power, steel and cement. 

Out of this, 24 were taken back at different points in time, leaving the total number of allocated blocks at 194. At present only 30 blocks are operational with annual capacity of about 40 million tonnes.