New Delhi: An inter-ministerial panel's recommendation to both de-allocate coal mines and invoke bank guarantees for some entities due to production delay is "severe" as it leaves no opportunity to develop blocks and simultaneously inflicts financial loss, India Ratings said.
An Inter-Ministerial Group (IMG) has recommended both de-allocation and BG invocation for some entities due to minimal progress and non-serious efforts by developers to reach production both in captive coal blocks (CCB) and in the end-use project, the ratings agency said Tuesday.
"Ind-Ra sees such action to be severe as it leaves no opportunity for allottees to develop coal blocks and at the same time inflicts financial loss," it added.
The IMG, under the chairmanship of Additional Secretary Coal, was formed last year to review the progress of coal blocks allocated to firms for captive use.
The report by India Ratings & Research comes on the day when a Parliamentary panel has suggested scrapping of mines that have not started production and termed the mines allocation made between 1993 and 2010 as "unauthorised and illegal".
The rating agency in its report also warned that there might be a possibility of deallocations becoming counter-productive if the investments slow down due to increased regulatory risk.
India Ratings is of the view that the impact of BG invocation is severe on allottees with small net worth and low operation cash flows.
"The impact of cash flows of small players can be high, thus leading them to default on reimbursement to banks. However, in some cases, the BGs are in turn guaranteed by financially strong parent entities, minimising credit risk for banks," it said.
The government had earlier accepted the recommendations of an inter-ministerial panel which suggested deallocation of 13 mines and deduction of bank guarantees of 14 firms.
A total of 58 mines were issued show-cause notices for their failure to develop blocks within stipulated timeline.