Power generation from imported coal to become costlier - Quoted in the Mint

Generating electricity from imported coal will become costlier as finance minister P. Chidambaram on Thursday removed duty concessions granted in last year’s budget.

Instead, he imposed an equal duty on different types of coal imported for electricity generation in the budget for 2013-14.

 

Under the Customs Tariff Act, the fuel 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.

 

“Steam coal is exempt from customs duty but attracts a concessional CVD (countervailing duty) of 1%. Bituminous coal attracts a duty of 5% and CVD of 6%. Since both kinds of coal are used in thermal power stations, there is rampant mis-classification. I propose to equalize the duties on both kinds of coal and levy 2% customs duty and 2% CVD,” Chidambaram said in his budget presentation.

 

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

 

The 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 19 February. This comes in the backdrop of customs authorities issuing notices to companies importing coal.

 

“The impact may be incremental now that prices are subdued from recent peaks, but will make it more expensive as international prices may be heading for a rise going by the forward-market transactions,” said Dipesh Dipu, a partner at Jenissi Management Consultants, a Hyderabad-based resources-focused consultancy.

 

India is facing a chronic fuel shortage. 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 imports. India’s demand for imported coal is growing and stands at an annual 137 mt.

 

Underlining the need for increasing the domestic production of coal, Chidambaram said, “Despite abundant coal reserves, we continue to import large volumes of coal. Coal imports in April-December 2012 have crossed 100 million tonnes. It is estimated that imports will rise to 185 million tonnes in 2016-17. If the coal requirements of the existing power plants and the power plants that will come into operation by 31 March 2015 are taken into account, there is no alternative except to import coal and adopt a policy of blending and pooled pricing. In the medium to long term, we must reduce our dependence on imported coal. One of the ways forward is to devise a public-private partnership (PPP) policy framework, with Coal India Ltd as one of the partners, in order to increase the production of coal for supply to power producers and other consumers.”

 

“The PPP mode also has an element of auction, but it is a better method of auction as for the private partner it speeds up processes of clearance at government level due to presence of Coal India. For Coal India, it opens up the trading route in a limited manner,” said Kameswara Rao, executive director and leader of energy, utilities and mining practice at audit and consulting firm PricewaterhouseCoopers Pvt. Ltd.