Investors are wary of holding exposure to companies mentioned in the auditor's report published on August 17 that questioned the government's practice of awarding coal mining concessions to companies without competitive bidding. Jindal Power Limited (JPL), a subsidiary company, was given four coal blocks before 2004 and another four after that.
There have been allegations that Mr Jindal, who is a Congress MP, used his political clout to get more coal blocks in India than anyone else. Mr Jindal has denied these allegations.
One of the charges against Mr Jindal's firm relates to a coal block it was assigned in Chhattisgarh in 1998, for a power plant nearby. In India, coal cannot be mined for commercial reasons by private players- it must feed a steel or power plant. Mr Jindal was given a coal block at no charge, but his power plant in Chhattisgarh operates on "a merchant power model" - it is not bound by a long-term power-purchase-agreement with the state. So according to the opposition, Mr Jindal's firm mines coal cheaply, and sells it at higher rates than other companies can because it can "spot sell" or auction power to the highest bidder interested at a given time.
JSPL is one of the 58 companies who face cancellation of their coal blocks for norms violation. JSPL has been asked to present its views on why it has failed to develop the coal blocks within a deadline of around 42 months.
JSPL has allegedly not started mining at Ramchandi block in Orissa, which was jointly awarded to JSPL & Tata Group. The block, which was to be used for coal-to-liquid project, has been mentioned in the CAG report.
The company is also under scrutiny of the Inter-Ministerial Group over the Jitpur coal block in Jharkhand for delay in start of production.
There are fears that projects close to commissioning will get delayed.
The global commodity cycle is working against the company. Indian steel makers are reeling under selling pressure because Chinese steel prices have fallen the most in July 2012 on weak demand.
Companies might have to pay higher price (upfront or recurring) for coal blocks to be awarded through competitive bidding in the future.
Following the CAG report, many brokerages have downgraded the stock. Kotak Securities removed JSPL from its model portfolio on August 27, 2012.
(With inputs from agencies)