India is hungry for coal, primarily to fire its power plants, cement and steel factories. Given the issues impeding the growth of coal mining here, most power companies have acquired assets in Australia and Indonesia to secure long-term supplies for their plants. But, importing this coal is going to become marginally costlier, with the Australian Parliament imposing a 30 per cent Minerals Resource and Rent Tax on coal and iron ore mine profits.
However, contrary to popular belief, companies that have invested in Australia say the move was expected and the impact would be marginal. The tax made news in India as Adani, Lanco and GVK had recently acquired coal assets in Australia and a higher tax would have affected the financial viability of their power plants. While analysts say there would be an increase in input costs in the medium-term, companies maintain the tax is at the mine level and not at the end-user level, and so, the impact, at best, would not be more than 80 cents (Australian) a tonne.
India imports 100 million tonnes of coal a year. Of this, 70 per cent is thermal coal (mainly from Indonesia), the remaining being coking coal (from Australia). While the former is used by power plants, coking coal is used by steel and cement companies. Says J Suresh Kumar, chief executive officer (CEO) of Shree Renuka Energy (former CFO of Lanco), “The tax will be imposed at the mine-level and not the end-user level. If the cost of production is $16/tonne, profit on value addition at the mine level would be $4-5 and, therefore, the impact would not be more than 80 cents. As the companies which invested in Australia were aware of the tax, this has not come as a surprise.” The tax will have to be paid by those having an annual profit of $75 million or more.
Though India is the third-largest exporter of iron ore, the mining ban in Karnataka has already resulted in a deficit. Commodity analysts expect Indian steel makers to start importing 30-40 million tonnes of iron ore soon. India is the fourth-largest steel producer in the world, with a capacity of 70 million tonnes. Australia’s tax will make iron ore 30 per cent more expensive. Last year, Indonesia had benchmarked domestic coal to global prices, a move that affected Tata Power’s Mundhra ultra mega power project. Similarly, power companies will have to revise their cost structures.