Coal block cancellations to hit CAD, power generation: SBI

The Supreme Court's decision to cancel coal block allocations may have a "marginal" adverse impact on India's current account deficit, and the net burden on CAD would be an increase of $700 million, says a study by the State Bank of India.

 According to SBI's research report Ecowrap, CAD is likely to be hit by additional coal imports. However, the greater part of the rise in import bills will be compensated by lower international oil prices.

During April-August 2014, the coal import bill has reached $6.9 billion, and may reach $24.9 billion during the current financial year, $8.5 billion higher than the last fiscal.

On the other hand, the oil import bill would decline up to $7.8 billion this fiscal as oil prices are expected to settle around $98 per bbl.

Accordingly, the "net burden on CAD will be an additional increase of $0.7 billion," the report said.

On 24 September, the Supreme Court dealt a major blow to the corporate sector by quashing the allocation of 214 out of 218 'captive' coal blocks that were allotted to various companies since 1993, in which it was claimed that over Rs2 lakh crore were invested.

A bench headed by Chief Justice R M Lodha saved only four blocks - one each belonging to state-owned firms National Thermal Power Corp and SAIL Ltd each and two allocated to Ultra Mega Power Projects.

The bench granted six months' breathing time to mining companies to wind up their operations in these blocks.

The SBI research note added that the cancellation of coal blocks would impact power generation capacity and the investment climate.

"After the cancellation of coal blocks, the government companies are not in a position to supply the required quantity of coal to power generation companies," the report said, adding that "power stations have a supply of less than one week of coal and therefore there are possibilities of power outages".

The report said "huge investments up to about Rs2.87 lakh crore have been made in 157 coal blocks as on December 2012 and the judgment will give a temporary setback to the investment climate."

A quick plan of action is required to ensure coal supplies are not disrupted for a longer period. Thereafter, ''we need a swift and transparent bidding process for reallocation'', it added.