Ind-Ra-New Delhi : India Ratings & Research (Ind-Ra) says that the government’s move to weed out non-serious allottees by de-allocating their captive coal blocks (CCBs) and/or through invoking bank guarantees (BGs) may speed up mine development.

Moreover, the possibility of a regulatory action on more coal block allottees for failing to meet mine development milestones can also expedite production from CCBs. However, there is also a likelihood that de-allocations can be counter-productive if investments in the power sector slow down due to increased regulatory risks.

Ind-Ra views the risk of CCB de-allocation to be higher for those allottees where reasons for delays in mine development are assessed to lie within control of the allottees. In cases where reasons for delay are not attributable to the allottees, there is a low probability of CCB de-allocation though the possibility of BG invocation will still remain if they are unable achieve CCB development milestones.

A total of 195 CCBs had been allotted till December 2011 with total geological reserves (GR) of 39.2bnMT, of which 80 CCBs were allotted to the power sector with GR of 21.7bnMT. Assuming 50% extractable reserves, the 80CCBs would have been sufficient to fuel 60-65GW of capacity. However, only 15 CCBs could reach the production stage (FY12: 25mMT), of which most were allotted prior to 2004.

Noting the dismissal progress on CCBs, the Ministry of Coal, classified them under six groups in March 2012 and thereafter an Inter-ministerial group (IMG) was formed to review their progress during September to November 2012. IMG recommended CCB de-allocation along with BG invocation for four CCBs and only BG invocation for five CCBs.

Ind-Ra expects contingent risk to have materialised on the balance sheet of those players whose BGs have been invoked. However, the companies which might have been the worst affected are smaller allottees with inadequate existing operational cash flows. Moreover, the action has been particularly severe for the four CCBs where the block has been de-allocated as well as the BG has been invoked.