NEW DELHI | May 13, 2016: The government has declined Anil Ambani-led Reliance Power's request to let it mortgage coal blocks attached to Sasan Ultra Mega Power Project ( UMPP) in Madhya Pradesh to lenders of the plant that include banks from the US, China and Singapore, official sources said.

The coal ministry has in a letter to Reliance Power and the Madhya Pradesh government communicated its dissent in granting permission to assign mining lease of Moher and Moher Amlohri Extension coal blocks as security to lenders of the Sasan project, officials said. The mining leases for the blocks were executed between the state and Reliance Power in September 2011.

The ministry has told the company and the state government that there is no provision for such mortgage in the contract documents and the power purchase agreement for Sasan project. The view was taken by the coal ministry after months of deliberations with the law and power ministries, a senior government official said.

He said that in its representations to the government and through Madhya Pradesh government, Reliance Power had told the central government that mortgage was a prerequisite for the Rs 14,500-crore debt that the company took from a consortium of 14 banks led by State Bank of India in April 2009.

An email sent to Reliance Power remained unanswered till press time.

The banks that financed 75% of the Rs 19,400-crore Sasan project included IIFCL, Power Finance Corp, Rural Electrification Corp, Punjab National Bank, LIC, Axis Bank, IDBI Bank, Andhra Bank, Bank of Baroda and Union Bank of India.

US Exim, Bank of China, China Development Bank and The Export Import Bank of China along with Standard Chartered Bank have refinanced part of this loan.

Officials said Reliance Power had approached the coal ministry in 2012 seeking approval for the mortgage. While Rule 37 of Mineral Concession Rules, 1960 provides for securing scheduled banks by mortgaging mines, there is no precedence to it, they said.

A government official said the rule does not clarify whether the coal blocks can stand guarantee to an attached enduse project and is silent on impact of the mortgage on the blocks.

The mining department of Madhya Pradesh had also written to the coal ministry supporting Reliance Power's demand for the mortgage. The department had also suggested ways to carry the mortgage and guaranteed strict monitoring of their implementation.

While there is no precedence for mortgage in case of previously allotted coal blocks, the government has allowed mortgage in case of auctioned mines to raise funds from banks without taking approval from the central government.

(Source: http://economictimes.indiatimes.com/)