THE BUZZ  
 Media reports from India said that the Inter-Ministerial Group (IMG) is set to recommend the de-allocation of some coal blocks  that were previously awarded to private firms. 29 out  of  the  58  coal  block  allocations  are  under  review,  and  further  action  is  likely  to  be taken against any company found violating the regulations.   

OUR TAKE 

Not  such  a  surprise.  We  expected  the  India  government  to  make  such  a  move,  as there has been mounting political pressure on and criticism of the Manmohan Singh-led ruling coalition over the coal block allocation scandal.
 
The  'Coalgate'  saga  continues.  The  political  debacle  '  which  has  been  called 'Coalgate' ' involves the Indian government's allocation of the nation's coal deposits to government-owned entities and private companies without a legitimate bidding process in place. Things came to a head in July when the opposition, the Bharatiya Janata Party, lodged a complaint that led to a Central Bureau of Investigation probe into whether the allocation  of  the  coal  blocks  was  influenced  by  corruption.  Since  then,  the  Comptroller and  Auditor  General  of  India  has  claimed  that  'Coalgate'  has  cost  the  government  a staggering loss of national income amounting to USD34bn.

Potential  de-allocation.  The  IMG  has  put  29  out  of  a  total  58  coal  block  allocations under review; of these, 27 have been scrutinised in the past fortnight. After reviewing all 29  allocations,  the  IMG  will  submit  its  recommendations  to  the  Coal  Ministry  and Finance Ministry for further action. Some media reports have quoted sources as saying there  could  be  a  potential  de-allocation  for  those  which  have  failed  to  commence production  within  the  prescribed  timeline,  as  well  as  meting  out  punitive  action  like forfeiting bank guarantees for the other culprits. 

Mudajaya  at  a  slight  advantage.  Mudajaya's management  has  confirmed  that  its allocated coal block is not one of the 29 shortlisted for review.  Even so, we believe that the coal supply issue in India is far from over. To our mind, the controversy surrounding the fuel supply agreements based on contracted coal requirements, the penalty imposed on Coal India in the event of a supply shortfall, as well as the uniform pricing of imported coal ' all of which play a part in dictating the direction of India's coal industry - have yet to be resolved. Hence, we maintain our NEUTRAL stance on Mudajaya, with our SOP-based FV unchanged at RM2.88, pegged at a 50% discount to our FY12 valuation.

Source:OSK