Impact of cut in customs duty on imported coal based power generation - My views in the Power Line magazine
• Do you think the power ministry’s proposal to waive the custom duty on imported coal will bring the needed relief to power developers?
Customs duty waiver will certainly bring relief and make imported coal based generation a little less expensive. Although for the past 3-4 months, internationally traded thermal coal prices have remained stable, but these are high by any standards. This at a time when the distribution utilities have refrained from buying expensive power. Hence, the resultant is that there are shipments of imported coal available at Indian ports with no takers. The depreciation of Indian Rupee has also further compounded the challenges and made import of coal seemingly un-affordable. Hence, the waiver of customs duty may bring in some relief in view of its relatively smaller proportion in the total cost of imported coal based power generation.
• What else do you think can the government do to resolve the crisis in the short term?
There does not seem to be many short term measures that can help the crisis in power generation and coal mining sectors. Widening gap between demand and supply of coal has had impacts on bank disbursements to power generation sector, which from the other side of the value chain faces issues of credit worthiness of the distribution companies. This is the scenario when there are consumers who may have affordability, since several of them run diesel generation sets for substantial parts of the days and weeks. The structural distortions in the market cannot be fixed by short term measures. The sectors need overhauls, for which appropriate mechanisms have been debated for a long time. Reforming coal sector through enhanced and scalable participation of independent private and foreign mining companies; restructuring and degrees of privatization through franchisee models and increased private sector participation in distribution sector; and better implementation of open access through phased elimination of cross-subsidies (although already mandated by the Electricity Act 2003) would go a long way to help the electricity sector. On these accounts, which are the primary reasons of the crisis in the sector, there does not seem much of effective options for short term measures.
Customs duty waiver will certainly bring relief and make imported coal based generation a little less expensive. Although for the past 3-4 months, internationally traded thermal coal prices have remained stable, but these are high by any standards. This at a time when the distribution utilities have refrained from buying expensive power. Hence, the resultant is that there are shipments of imported coal available at Indian ports with no takers. The depreciation of Indian Rupee has also further compounded the challenges and made import of coal seemingly un-affordable. Hence, the waiver of customs duty may bring in some relief in view of its relatively smaller proportion in the total cost of imported coal based power generation.
• What else do you think can the government do to resolve the crisis in the short term?
There does not seem to be many short term measures that can help the crisis in power generation and coal mining sectors. Widening gap between demand and supply of coal has had impacts on bank disbursements to power generation sector, which from the other side of the value chain faces issues of credit worthiness of the distribution companies. This is the scenario when there are consumers who may have affordability, since several of them run diesel generation sets for substantial parts of the days and weeks. The structural distortions in the market cannot be fixed by short term measures. The sectors need overhauls, for which appropriate mechanisms have been debated for a long time. Reforming coal sector through enhanced and scalable participation of independent private and foreign mining companies; restructuring and degrees of privatization through franchisee models and increased private sector participation in distribution sector; and better implementation of open access through phased elimination of cross-subsidies (although already mandated by the Electricity Act 2003) would go a long way to help the electricity sector. On these accounts, which are the primary reasons of the crisis in the sector, there does not seem much of effective options for short term measures.
posted by Dipesh Dipu @ 1:45 AM
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