ET NowET Now caught up with Sushil Maroo, Director, Essar Energy, for his views on the SC verdict on coal block allocation. Excerpts:
ET Now: Prima facie this is bad news, but do you think the Supreme Court has done the right thing by cancelling all the coal blocks because there was no method in place when these coal blocks were allocated?
Sushil Maroo: Whatever the Supreme Court has done, it must have done it after examining all the facts and figures. But yes, it is pretty bad for the industry as such, because the industry never expected this to come in and hit them after 20 years.
Companies always think that the process followed by the government over a period of time should be right, or should have been right. Based on that, they have made thousand of crores of investments. Based on that investors put their money in; based on that bankers gave their money. The economic cycle moves based on these things. So it is pretty bad for the industry as such.
ET Now: I am going to take the story forward. What happens to the banks now, because based on these coal blocks, banks had given money to some of these power companies?
Sushil Maroo: You are right. In fact, banks have given money to almost all the power companies since that was a condition that coal blocks will be given and continue to remain if the company puts out the power plant. So, the money has been invested.
Many of the power plants are ready, many are getting ready. The banks and companies have to wait and look towards the government to come out with some kind of policy, and the government should come out with a policy fast.
ET Now: Do you think this landmark judgement would act as a precedence for how natural resources will be auctioned now? I mean ultimately it is all about fair auction and that is what I think the Supreme Court is now trying to arrive at. So, in the short term, it may look negative, but the ultimate objective is great here. Your view?
Sushil Maroo: To some extent you are right, because it will provide a level playing field to everyone. In the auctions the companies can participate and can buy the blocks. But then we will have to wait and watch whether the auctions will be linked to the plant, and whether mining will be allowed as happens in many other countries.
There are so many issues relating to the auctions. Another issue is that after 1993, we are seeing that the whole process has been held arbitrary and illegal.
Now, I hope that the auction process gets perfectly legally validated so that the kind of questions, raised today in the court, is not raised again after 10 years.
ET Now: You have been looking at JSPL Financials for a long time. Talk to us about what options really the steel companies have now. Where the coal block has been de-allocated, import is going to be extremely expensive, it is probably going to erode the margins completely off the new projects coming in. What would be the general view for steel companies where these coal blocks have been de-allocated?
Sushil Maroo: See, there are two scenarios here. One is the producing coal blocks and other is the coal blocks which were going to produce. We hope that the producing coal blocks are properly handed over to Coal India Limited and there are proper guidelines established so that the exiting companies which are using the coal blocks are given the right of first refusal. Or that they are given the coal on a priority basis to take care of their needs. Then production can be again enhanced from the same mines to take care of other companies’ needs.
That will also increase coal production in the country.
Coming to the other blocks which are yet to produce, we expect that Coal India brings those coal blocks into production mode quickly and takes care of the increasing demand of those steel and cement companies and other companies. Import is not a solution, because we do not have the ability to really manage that kind of import.
Our ports are not really equipped. We do not have last-mile connectivity. We do not have rail network. We do not have road network and many of the steel companies and many of the power companies are located based on their coal mine operations. They are not necessarily logistically located near the rail lines.
So, the answer lies in improving the performance of the existing coal blocks, handing over to Coal India or to any other agency, well in time, nicely. One has also to ensure that the existing companies’ activities do not get affected.
ET Now: The petitioner ML Sharma is of the view that electricity prices will not go up, because the cost of production for a power company is only 70 to 80 paisa. Is there merit in believing that power prices in India will not move up and the consumer should not worry?
Sushil Maroo: The power prices will not go up and 70 paisa will remain if the coal cost of the companies remains the same. But that is not going to be the case going forward. It is because if the coal is available to all these companies which were planning to mine coal and sale power, power prices are not going to be 50, 60 or 70 paisa, it is going to be probably 1 rupee 20 paisa or even more.
Secondly, if these blocks are auctioned, then the cost of the auction will in any case be passed on, because now the bidding document says that the variable cost is passed to the ultimate consumer. So, the higher variable cost will be passed on to consumers.
It is very difficult to say that the electricity price will not go up. From what I see, it has to go up.
ET Now: Prima facie this is bad news, but do you think the Supreme Court has done the right thing by cancelling all the coal blocks because there was no method in place when these coal blocks were allocated?
Sushil Maroo: Whatever the Supreme Court has done, it must have done it after examining all the facts and figures. But yes, it is pretty bad for the industry as such, because the industry never expected this to come in and hit them after 20 years.
Companies always think that the process followed by the government over a period of time should be right, or should have been right. Based on that, they have made thousand of crores of investments. Based on that investors put their money in; based on that bankers gave their money. The economic cycle moves based on these things. So it is pretty bad for the industry as such.
ET Now: I am going to take the story forward. What happens to the banks now, because based on these coal blocks, banks had given money to some of these power companies?
Sushil Maroo: You are right. In fact, banks have given money to almost all the power companies since that was a condition that coal blocks will be given and continue to remain if the company puts out the power plant. So, the money has been invested.
Many of the power plants are ready, many are getting ready. The banks and companies have to wait and look towards the government to come out with some kind of policy, and the government should come out with a policy fast.
ET Now: Do you think this landmark judgement would act as a precedence for how natural resources will be auctioned now? I mean ultimately it is all about fair auction and that is what I think the Supreme Court is now trying to arrive at. So, in the short term, it may look negative, but the ultimate objective is great here. Your view?
Sushil Maroo: To some extent you are right, because it will provide a level playing field to everyone. In the auctions the companies can participate and can buy the blocks. But then we will have to wait and watch whether the auctions will be linked to the plant, and whether mining will be allowed as happens in many other countries.
There are so many issues relating to the auctions. Another issue is that after 1993, we are seeing that the whole process has been held arbitrary and illegal.
Now, I hope that the auction process gets perfectly legally validated so that the kind of questions, raised today in the court, is not raised again after 10 years.
Sushil Maroo: See, there are two scenarios here. One is the producing coal blocks and other is the coal blocks which were going to produce. We hope that the producing coal blocks are properly handed over to Coal India Limited and there are proper guidelines established so that the exiting companies which are using the coal blocks are given the right of first refusal. Or that they are given the coal on a priority basis to take care of their needs. Then production can be again enhanced from the same mines to take care of other companies’ needs.
That will also increase coal production in the country.
Coming to the other blocks which are yet to produce, we expect that Coal India brings those coal blocks into production mode quickly and takes care of the increasing demand of those steel and cement companies and other companies. Import is not a solution, because we do not have the ability to really manage that kind of import.
Our ports are not really equipped. We do not have last-mile connectivity. We do not have rail network. We do not have road network and many of the steel companies and many of the power companies are located based on their coal mine operations. They are not necessarily logistically located near the rail lines.
So, the answer lies in improving the performance of the existing coal blocks, handing over to Coal India or to any other agency, well in time, nicely. One has also to ensure that the existing companies’ activities do not get affected.
ET Now: The petitioner ML Sharma is of the view that electricity prices will not go up, because the cost of production for a power company is only 70 to 80 paisa. Is there merit in believing that power prices in India will not move up and the consumer should not worry?
Sushil Maroo: The power prices will not go up and 70 paisa will remain if the coal cost of the companies remains the same. But that is not going to be the case going forward. It is because if the coal is available to all these companies which were planning to mine coal and sale power, power prices are not going to be 50, 60 or 70 paisa, it is going to be probably 1 rupee 20 paisa or even more.
Secondly, if these blocks are auctioned, then the cost of the auction will in any case be passed on, because now the bidding document says that the variable cost is passed to the ultimate consumer. So, the higher variable cost will be passed on to consumers.
It is very difficult to say that the electricity price will not go up. From what I see, it has to go up.
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