India's top court cancels 214 coalfield permits

Indian coal miners carry baskets of coal inside an underground tunnel of a mine owned by the Sinagareni Collieries Company Limited at Godavarikhani, some 250 kilometres east of Hyderabad.

AFP/New Delhi

India's top court on Wednesday cancelled more than 200 government permits for coal mines and handed down fines worth hundreds of millions of dollars to companies after the licensing process was deemed illegal.

The ruling triggered a sharp slide on the stock market, deepening the crisis in the mining sector which has been in turmoil since the government-run procedure for awarding the coal blocks between 1993 and 2009 had been declared illegal.

After the Supreme Court's illegality ruling last month, the coal industry had been fearing the worst from Wednesday's hearing, which analysts say could lead to a coal shortage.

Energy-hungry India relies on coal to produce two-thirds of its electricity, with blackouts common. Power stations warned even before the verdict that they were facing low supplies.

In the end, only four out of the 218 contracts - which were mainly handed out by the previous left-leaning Congress government - were allowed to stand.

The court cancelled 168 of the other 214 allocations with immediate effect and gave the other 46 six months' grace to continue operating.

"All the coal blocks must be cancelled, there is no reason to save them as they are illegal," Chief Justice R.M. Lodha said in the ruling.

"Breathing time needs to be given to 46 allottees, who have been given respite till 31st March, 2015," he added. All of these are blocks where mining activity has been under way.

The ruling that the blocks were allocated illegally stems from 2012 allegations by the national auditor that the government underpriced coal mines and gave away around $30bn in windfall gains to companies.

The auditor had concluded in a scathing report that the blocks should have been auctioned instead.

Four coalfields which were initially declared illegal have been spared a shutdown because of their massive power generation capacity, the court said. 

Two of them are government-run ultra-megapower projects in the central state of Madhya Pradesh and the remainder belong to the state-owned National Thermal Power Corp and Steel Authority of India.

As part of the ruling, the firms who have been allowed to continue operating the 46 mines will have to pay a fine of 295 rupees ($4.80) for every tonne of coal extracted.

India's NDTV news network reported that the total could amount to between 80bn to 100bn rupees ($1.32-1.64bn).

The Mumbai Stock Exchange's benchmark index plunged nearly 176 points immediately after the ruling although it recovered some losses towards the end of trading.

Kalpana Jain, a senior director with consulting firm Deloitte India, said the ruling could starve the coal-fired power plants.

"If the functional mines are unable to pay the penalty the court ordered, they could discontinue operations, leading to a shortage of coal production," she said.

"In the next six months till the government holds fresh auctions, there is also a possibility that power tariffs may rise."

While the ruling could have dramatic consequences in a country with a long history of power cuts, it was welcomed by the right-wing government which took power in May's elections.

"Central government welcomes this judgement and we are comfortable with the verdict given by the Supreme Court," Attorney General Mukul Rohtagi told reporters outside court.

Law Minister Ravi Shankar Prasad also praised the ruling.

"The government has already taken a position, that we will be happy if all (the permits) are cancelled so that we can make a fresh start except for those which are with government companies and some other pressing needs," he told reporters.

India has one of the world's biggest proven reserves of coal but disarray in the sector means demand still outstrips supply.