Can Reliance Power be allowed to mortgage its coal blocks as collateral for a Rs 14,500-crore loan? The Coal Ministry under Piyush Goyal said no, underlining this would "vitiate the bid document and bidding process". A week later, the Power Ministry, also under Goyal, said it didn't share the Coal Ministry's view.
With Coal and Power sticking to their positions, Goyal widened the debate to consider if all captive power projects, not just Reliance, could be allowed to use coal mines as collateral — last Tuesday, the Mines portfolio was also handed to him in the reshuffle of the Council of Ministers.
In the first week of June, Goyal directed "whether UMPP (ultra mega power project) or otherwise, the mortgage of mines/ mining lease and whether bidding condition permit, it may be put up to an IMC (inter-ministerial committee) of Power, Coal, Banking and Law under the chairmanship of Power and give its recommendations within 30 days."
On May 4, the Coal Ministry turned down Reliance subsidiary Sasan Power's request to allow mortgage of captive blocks of Sasan UMPP to security trustee SBI Caps on grounds that "mortgaging it may vitiate bid document and bidding process which will render the entire process questionable".
This followed an April 19 meeting of officials of Coal and Power where "a view emerged that as per article 16 of the Power Purchase Agreement (PPA) which also formed part of the bidding documents, coal block was not specified as one of the assets".
But a week after Sasan Power's request was turned down, the Power Ministry challenged the joint decision, saying "it was not mentioned by representative of the Ministry of Power that mortgaging of coal blocks would vitiate the bid document and bidding process which will render the entire process questionable".
"Ministry of Power would like to reiterate its views that according to the PPA, nothing specific has been mentioned in the PPA regarding the mortgage/assigning of mining lease of coal block. It was also stated that coal from the mine is to be exclusively used for the designated UMPP," it said.
The Coal Ministry too responded. "It is unfortunate that now something different is being conveyed (by Power Ministry) through a letter than what was discussed and agreed by all including the representative of Ministry of Power," it said, highlighting that it took more than a fortnight for the Power Ministry to contradict the minutes sent on April 22.
It said the Power Ministry, rather than taking a clear stand, had merely reiterated that "nothing specific has been mentioned in the PPA regarding the mortgage/assignment of mining lease of the coal block".
The Coal Ministry again approached Goyal for instructions on whether the mortgage/assignment could be permitted.
"It may be clarified that mortgage/assignment of mining lease can be permitted if it does not vitiate the bid process and Ministry of Power is of clear view that mining lease/coal block is an asset as per the definition of assets given in bid document/PPA," it asked.
"If, however, Ministry of Power is of the view that mining lease/coal block is not an asset covered under the definition of asset given in PPA/bid document and (that) according the permission may vitiate the bid, the permission to mortgage mining lease cannot be given, a decision which has been taken and communicated to the Government of Madhya Pradesh," it stated.
Goyal's noting of early June states: "Since UMPPs are essential for the growth of power generation in our country, we need to take a holistic view to resolve this issue. The definition of assets is not very different in the case of a power plant."
When The Indian Express sought his comments, Goyal's office said the issue of mortgage of coal blocks by Sasan Power had been referred to an inter-ministerial committee.
Asked what prompted the change in decision considering permission had earlier been declined to Sasan Power, Goyal's office said: "There was difference of opinion on interpretation of a certain clause of the bid document and PPA. It has been referred for wider consultation."
Last year, Sasan Power repeated its December 2011 request that mortgage of Moher and Moher-Amlohri Extension, attached to Sasan UMPP in Singrauli district of Madhya Pradesh, was a prerequisite "to provide security to the lenders" for the Rs 14,500-crore debt it took from a consortium of 14 banks led by SBI Caps in April 2009.
Sasan Power said Madhya Pradesh government had no objection to it but the request was being submitted to the Centre as Rule 37 of the Mineral Concession Rules of 1960 stipulates that "approval of the Central Government is required to mortgage/assign the mining lease".
While there is no precedence for mortgage in case of previously allotted captive coal blocks, states have allowed mortgage in case of auctioned mines to raise funds from banks without approval from the Centre since the tender documents for auctioned blocks allow such privilege.
Source- Indian Express