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| Last Updated:09/09/2016

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Coal Ministry debars lenders from transferring mining lease to other entities

 

Date | Sept 06, 2016:

While allowing Reliance Power to mortgage coal blocks attached to Sasan UMPP to project lenders, the coal ministry has debarred the lenders from transferring the mining lease or diverting coal supplies to any other entity or project.

 

In case of a default, “the mining lease can only be transferred by the assignee of mining lease to a person who operates/owns Sasan Ultra Mega Power Project,” says the coal ministry’s August 23 order allowing Sasan Power Ltd to use captive blocks Moher and Moher Amlohri Extension as security for a Rs 14,500-crore loan.

 

“The mining lease even after transferred to a third party can only be utilised for the purpose of supplying coal to Sasan UMPP,” it adds.

 

Any transfer, says the order, would require the “written consent” of the Madhya Pradesh government as well as “prior approval” of the central government with the new assignee being one who is eligible to get the mining lease as per the provisions of the Mines and Minerals (Development and Regulation) Act.

 

The coal ministry has ensured that even when the lease is transferred to a third party, the latter would “also be bound to comply with all obligations of Sasan Power as per terms of the mining lease and the power purchase agreement (PPA), including supply of power at the agreed tariff” unless the power ministry agrees to change it in future.

 

Following amendments to the MMDR Act last year and again last March, lease transfer is allowed in both cases where the captive mine has been acquired through auction or outside it. The changes are aimed at facilitating banks and financial institutions to liquidate stressed assets where a firm or its captive mining lease is mortgaged.

 

Coal and power — both under Piyush Goyal — were locked in a tussle over allowing Reliance to mortgage captive blocks Moher and Moher Amlohri Extension as security for a Rs 14,500-crore loan. While coal ministry said it would “vitiate the bid document and bidding process”, the power ministry said “nothing specific” was mentioned in the PPA on the mortgage/assigning of mining lease of coal block.

 

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. He appointed an inter-ministerial committee of power, coal, banking and law to give recommendations. The IMC headed by power ministry’s additional secretary (thermal, transmission, O&M) Shalini Prasad decided that the UMPPs could assign or mortgage their coal mines to their project lenders.

 

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: http://indianexpress.com/)