Budget may clarify on coal import duty - Quoted in the Mint

The Union budget may announce a clarification on coal imports meant for electricity generation that would resolve the confusion resulting in Indian customs authorities denying importers of the fuel duty concessions granted in last year’s budget.

Mint reported on Monday about customs authorities issuing notices to companies importing coal.

A person aware of the development said on condition of anonymity, “The Central Electricity Authority (CEA) is working on the definition. A clarification may be issued shortly.”

 

CEA is India’s apex power sector planning body. The issue stems from the interpretation of the exemption which was granted specifically to steam coal. Customs authorities have taken the view that the coal being imported for power generation is not steam coal, but bituminous coal and, therefore, liable for higher duty than the concessional duty of 1% announced in last year’s budget. Customs duty on bituminous coal is 55%.

 

Under the Customs Tariff Act, coal has been classified as anthracite, bituminous, coking and steam coal. While steam coal is only used for electricity generation, most bituminous coal is used for power generation and can also be used to produce sponge iron and as a partial substitute for metallurgical coal.

 

“The issue has come up to us. We have issued clarifications. A lot of people have been served notices. Since the last year’s budget meant this for power sector, announcement to this effect will come in this year’s budget. The issue will be sorted out,” said a senior CEA official who also didn’t want to be identified.

 

The finance ministry’s position could not be confirmed as it is under quarantine during the last phase of preparations for the budget, which will be announced by finance minister P. Chidambaram on 28 February.

 

“Domestic producers of thermal power have been under stress because of high prices of coal. I propose to ease the situation by providing full exemption from basic customs duty and a concessional CVD (countervailing duty) of 1% to steam coal for a period of two years till 31 March 2014,” then finance minister Pranab Mukherjee had announced in last year’s budget.

 

This confusion comes at a time when India has been projected to be the world’s second largest consumer of coal after China by the International Energy Agency.

 

“The upcoming Union budget offers an urgent opportunity to remedy this problem and allow industry the benefit announced last year,” said Gokul Chaudhri, a partner at BMR Advisors, a consultancy.

 

The industry’s concern stems from power generation companies depending on imports to tide over inadequate domestic fuel supplies. India faced an electricity shortage of 8,200 megawatts (MW) in January due to fuel constraints, according to CEA.

 

The country has a power generation capacity of 210,952MW, of which 57.3%, or 120,873.38MW, is coal based. The power sector is the major consumer of the fossil fuel, absorbing nearly 78% of total domestic production.

 

Coal India Ltd, the world’s biggest coal miner, produced only 431 million tonnes (mt) in 2010-11 against a target of 461.5 mt. It had failed to meet its 2011-12 target of 440 mt as well, mining 435.84 mt, but has set a target of producing 468.74 mt in 2012-13 in the face of various hurdles.

 

In order to tide over the problem, the government is looking at various temporary solutions such as pooling imported and domestic coal prices, which may increase electricity tariffs by up to 13 paise a unit.

 

In such a scenario, imports hold the key. The size of the market for imported coal that goes into power generation in India is around 80 million tonnes per annum (mtpa). Coal demand in India is expected to grow from 649 mtpa now to 730 mtpa in 2016-17. The availability of local coal is estimated at 550 mt in 2016-17, with the shortage largely expected to be met through imported coal. India’s overall demand for imported coal is growing and stands at an annual 137 mt.

 

“The reason for the budgetary proposal for reduction of duties on imported coal for power generation was to make imports relatively more affordable, and the possible legal interpretation to levy duties went against that intent. Setting the relevant circulars right will make the legal text aligned with the context,” added Dipesh Dipu, a partner at Jenissi Management Consultants, a Hyderabad-based energy- and resources-focused consulting company.

 

India has a known gross resource base of 264,000 mt of coal, the fourth largest in the world, of which proven reserves are around 101,000 mt.