Penalty of INR 295 on every ton of coal mined from captive blocks, since 1993-2010 likely to be a burden of INR 29 billion on domestic Iron and Steel industry.
On 24 Sep’14, the Supreme Court imposed a penalty of INR 295 on every ton of coal mined from captive blocks, since 1993-2010. This penalty, translates to a burden of INR 29 billion on domestic Iron and Steel industry and likely to reduce the companies’ profitability by around 10%. Any rise in Sponge prices owing to coal shortage may increase the material cost of secondary steel players.
In its verdict, the court had de-allocated total 214 blocks, out of which 12 operational coal blocks sums up to about 14.58 MnT pa capacity and allotted to Iron and Steel manufacturers. This might have an adverse impact on cost structure of around 4.75 MnT pa Sponge capacity and about 1,713 MW of captive power capacity, which links to around 8.5 MnT pa of steel capacity. Perhaps, these capacities would have to rely on expensive coal from outside sources to cater their fuel requirements.
The de-allocation is likely to impact integrated steel manufacturers using Sponge iron. While, stand-alone secondary manufacturers are unlikely to be impacted directly, as any surge in sponge prices in the market would push up their raw material cost as well.
The court has handed the de-allocated blocks to CIL. However, CIL is likely to take five to six months to expand production from these mines. In the transition period, steel & power companies are likely to battle with supply issues, as per sector experts.