The coal ministry is taking back 31 coal blocks allocated to private firms including the Tata group and Jindal Steel and Power over delays in developing them, jeopardising billion-dollar projects and inviting warnings of legal action.
The ministry, reviewing some 61 coal blocks allocated over the past decade that have not started production yet, announced on Tuesday it is reclaiming about half as companies have failed to meet milestones. The companies say delays in getting some government clearances hampered work on the blocks.
"The ministry has already sent notices to a number of companies about the de-allocation," coal ministry spokesman N.C. Joshi said on Wednesday. "Some others will be intimated soon."
The Tata group, in partnership with South Africa's Sasol, was planning to invest $10 billion in a project to convert low-quality coal into oil starting 2018. Jindal Steel too was working on a similar project and had spent about $12 million out of total planned investment of $10 billion.
The government periodically reviews the status of coal projects and has previously also reclaimed allocated blocks. The de-allocated blocks will be given to state-owned Coal India Ltd for the time being and may later be offered to new developers, Joshi said.
Jindal Steel, whose chairman Naveen Jindal is a Member of Parliament from the ruling Congress party, said it will take the government to court for the decision to take back the Ramchandi block in eastern Odisha state.
Rajani Kant Singh, the steel and mines minister of Odisha where the Tata-Sasol block is also located, called the federal government's move "unfortunate" as it came at a time when "procedural maintenance was underway".
Jindal Steel was allocated the block in early 2009 for it to produce 80,000 barrels of oil per day. The Tata-Sasol venture was also planning to ramp up output to 80,000 barrels per day within a year from starting, a Sasol executive said in 2010.
"Jindal Steel opines that it is the most unfair decision," a company spokesman told Reuters. "We'll challenge this decision in a court of law."
The spokesman declined to give a timeline by when the company will approach a court. A spokeswoman for the Tata-Sasol venture did not immediately comment on the fate of the project.
Jindal Steel's shares closed up about 7 per cent on Tuesday because investors were relieved that a big capital-intensive project was likely to be cancelled following the de-allocation, said Angel Broking analyst Bhavesh Chauhan. The Jindal Steel spokesman declined to comment on the fate of the coal-to-liquid project.
Chauhan said that only a handful of companies whose coal blocks will be taken away have invested in the projects, which means there would not be much of an impact for investors.
Apart from the companies working on the coal-to-liquid projects, Adani Power Ltd is one of the large companies whose coal blocks will be taken back. An Adani spokesman could not be reached immediately for comment.