While the government of India's ordinance clearly lays out the
procedure of reallocation of cancelled mines, the cash flow impact on
companies with operating mines whose allocations were cancelled
continues to be unclear.
The ordinance clarifies how and by when the additional levy imposed by the Supreme Court has to be paid. The prior allottees will be allowed to participate in the new auctions only after the levy is paid, indicating a certain outflow for the prior allottees over the next two quarters.
The compensation method of the investments already made is also detailed. Land will be compensated at the registered sale deed value with an additional 12% interest from the day of registration up to 1 April 2014 (the appointed date). Other investment in mine infrastructure will be compensated at the written-down value reflected in the audited balance sheet of the previous financial year of the prior allottee. Thus, the amount of inflow due to compensation can also be quantified. The prior allottees are, however, free to dispose the movable equipment either by selling it to the new allottee or otherwise.
The cash inflow from land compensation is likely to set of the outflow because of the additional levy. However, the most important cash outflow for prior allottees would be the one due to the additional cost of coal. While the ordinance allows the prior allottees to participate in the auctions, the actual additional cost of coal will be known only post auctions.
The expectation for preferential treatment in allocation of mines in the form of first right of refusal or even a promise of preference in coal linkage allocation has not been made to the prior allottees.
Setting the procedure to be followed and making it as litigation proof appear to be the main objectives of the government. The other objective is to achieve the primary goals without disrupting the current coal production. The ordinance also allows the current allottee to continue mining till such date as the new allottee obtains the mining license.
The ordinance follows an earlier Supreme Court order cancelling the prior allocation of 204 coal blocks allotted between 1993 and 2011. Following the cancellation, Ind-Ra had placed the ratings of two prior allottees, Usha Martin Limited (‘IND A') and Emta Coal Ltd (‘IND BBB+'), on Rating Watch Negative.
The ordinance clarifies how and by when the additional levy imposed by the Supreme Court has to be paid. The prior allottees will be allowed to participate in the new auctions only after the levy is paid, indicating a certain outflow for the prior allottees over the next two quarters.
The compensation method of the investments already made is also detailed. Land will be compensated at the registered sale deed value with an additional 12% interest from the day of registration up to 1 April 2014 (the appointed date). Other investment in mine infrastructure will be compensated at the written-down value reflected in the audited balance sheet of the previous financial year of the prior allottee. Thus, the amount of inflow due to compensation can also be quantified. The prior allottees are, however, free to dispose the movable equipment either by selling it to the new allottee or otherwise.
The cash inflow from land compensation is likely to set of the outflow because of the additional levy. However, the most important cash outflow for prior allottees would be the one due to the additional cost of coal. While the ordinance allows the prior allottees to participate in the auctions, the actual additional cost of coal will be known only post auctions.
The expectation for preferential treatment in allocation of mines in the form of first right of refusal or even a promise of preference in coal linkage allocation has not been made to the prior allottees.
Setting the procedure to be followed and making it as litigation proof appear to be the main objectives of the government. The other objective is to achieve the primary goals without disrupting the current coal production. The ordinance also allows the current allottee to continue mining till such date as the new allottee obtains the mining license.
The ordinance follows an earlier Supreme Court order cancelling the prior allocation of 204 coal blocks allotted between 1993 and 2011. Following the cancellation, Ind-Ra had placed the ratings of two prior allottees, Usha Martin Limited (‘IND A') and Emta Coal Ltd (‘IND BBB+'), on Rating Watch Negative.
