Budgets, diesel to increase power prices

FinMin equalised duties on both steam coal and bituminous kinds of coal to levy 2% customs duty and 2% countervailing duty

 

Consumers might be looking at a slight increase in their utility bills this year, thanks to changes proposed in both union Budget as well as the railway Budget.

Yesterday, the Finance Minister brought steam coal into the purview of customs duty, and also equalised duties on both steam coal and bituminous kinds of coal to levy 2% customs duty and 2% countervailing duty (CVD).

“Earlier it was just  1% CVD which could be claimed back by the company importing the thermal coal, used in power plants. Hence this budget there is a levy of 2% additional customs duty and another one% CVD. Although CVD can be claimed back, the 2% levy in customs duty will affect coal prices and power generation costs,” said Debashish Mishra, senior director, Deloitte Touche Tomatsu.

The power generation cost of imported coal based power plants could go up by at least 5-6 paise per unit. As per the regulations of power purchase agreements made by distribution companies with power generators, any increase in costs due to changes in law can be passed on to the buyer, and consequently the consumer.

Companies however are happy with the clarification as customs department has been raising questions on the end purposes of coal imported. “We are thankful for the minister's announcement to equalise the custom and CVD for steam and bituminous coal used in thermal power generation as this provides clarity to otherwise claims that got raised by customs department,” said Anil Sardana, managing director of Tata Power.  

Domestic coal-based power plants are in no better shape. Railway Budget proposed a 5.79% hike in freight charges. Added to that, they have also sought an automatic adjustment of their increased diesel cost burden to be passed on to the customer. This could impact by as much as another five paise to the costs.

“Not many power plants except a few are located on the port itself. Most other plants will have to face the burden of increased railway freight charges as well as imported cost based costs,” said Pradeep Lenca, chief executive officer of power business at Aditya Birla group.

Added to these worries, Coal India too has been seeking a similar increase for diesel cost adjustment to the coal they supply, domestically. The coal producer uses diesel for its equipment dumpers and dozers  to extract coal. This could add another 7-8 paise per unit to the generation cost.

Kameshwara Rao, executive director of utilities at PriceWaterhouse Coopers believes that the time has come for planners to evaluate location of power plants as transportation gets expensive. He believes that power plants should be located at coal source on the pit-head and transmission lines to be used to carry power to the spots of consumption. “Physical delivery of coal is becoming more and unviable,” he said.