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Web Exclusive | March 2013

Power produced from imported coal to become costly

Union Finance Minister P Chidambaram has put the same percentage of custom duty for steamed coal and bituminous coal imports in the Union Budget unveiled on February 28. The steamed and bituminous coal will have a custom duty of two per cent and on two per cent of Countervailing Duty (CVD).

Chidambaram said in his speech that since both kinds of coal are used in thermal power stations, there is rampant misclassification. He proposed to equalise the duties on both kinds of coal and levy two per cent customs duty and two per cent CVD.

This comes as a burden for power plants run on imported coal by companies such as Tata Power, Adani and Lanco, among others. Thermal power plants using imported coal will therefore see a rise in their power generation cost by at least 5-6 paise per kWH. The ones more dependent on imported coal will see a higher price rise than one based on domestic, said Debasish Mishra, Senior Director at Deloitte Touche Tohmatsu India.

In case of the Ultra Mega Power Projects (UMPPs), the developer would pass through the increase. This is because as per the ‘Change in law’ clause, any increase in generation cost because of change in law can be passed through. Ultimately, the customers will have to pay more.

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 sponge iron and as a partial substitute for metallurgical coal.

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