The NSW government has announced that it will cancel coal licenses issued by disgraced former Labor minister Ian Macdonald and refuse to provide their bearers with compensation.

Premier Barry O’Farrell will make recourse to special legislation to cancel three coal licenses issued by Ian Macdonald during his tenure as the NSW Minister for Minerals and Forest Resources, on the grounds that their dispensation was “tainted by corruption.”

The NSW government has also stated that it will provide “no compensation” to bearers of the licenses, which are valued in the hundreds of millions of dollars. The decision is set to trigger legal action from license-holders and their investors, who have been quick to make their grievances public.

A spokesman with ASX-listed NuCoal Recourses said that the state government had engaged in “zero consultation” with the company on the issue, and that it would now seek to “pursue all legal avenues to obtain compensation.” The company had previous raised the possibility of pursuing compensation in excess of half a billion dollars in the event that its license were annulled.

NuCoal investor Ventry Industries, a US investment fund which holds a 2.43 per cent stake in the miner, has even threatened to lobby the US Congress and government over the NSW government’s decision, which they claim is in breach of articles of the US-Australia free trade agreement concerning the confiscation of property without just compensation or due process.

Private miner Cascade Coal, which holds exploratory licenses valued at $500 million and whose key investors were found by an ICAC inquiry to have acted corruptly, said that the decision would cause “irreparable damage to the reputation of NSW and raise significant questions of sovereign risk.”

Despite the grievances of license holders, O’Farrell hopes that the decision will serve to draw “a line under this sorry saga of Labor politics and corruption in NSW.”

NSW state politics was rocked in 2012 by the revelation that Macdonald and Labor powerbroker Eddie Obeid had engaged in extensive corruption with respect to the issuance of mining licenses for coal tenements.

A public inquiry launched by the Independent Commission Against Corruption (ICAC) last year found that Macdonald and Obeid had engaged in corrupt conduct in 2008 with their agreement to create a mining tenement on the Obeid family farm in the Bylong Valley, which provided an initial profit of at least $30 million.

The inquiry also found that five investors in Cascade – including coal magnate Travers Duncan, businessman John Kinghorn and investment banker Richard Poole, had engaged in corruption by concealing the role played by the Obeids’ in relation to the mining tenement.

ICAC subsequently advised the state government that a number of the licenses should be annulled on the grounds that they had been “tainted by corruption,” while also recommending that it introduce legislation to confiscate profits from any persons aware of the corruption.