Duty increase on steam coal may push up electricity tariff

The government today announced raising basic custom and countervailing duty on steam coal, used in power generation, a step which analysts said will lead to marginal increase in power tariffs.

Finance Minister P Chidambaram in his budget speech announced a hike in the basic customs duty on steam coal from present nil to 2% and countervailing duty (CVD) from 1% to 2%.

According to analysts the increase in basic custom and countervailing duty may marginally increase the electricity prices.

"With the hike in both duties, the power generating companies will pass on the increase to the consumers and may lead to increase in power tariffs," an industry analyst on the condition of anonymity said.

The steam coal import target for the current fiscal is 70 million tonnes against 60 million tonnes in the last fiscal. Till now country has imported 50 million tonnes of steam coal

Steam coal also known as thermal coal is mainly used in power generation.

"Steam coal is exempt from customs duty but attracts a concessional CVD of 1%. Bituminous coal attracts a duty of 5% and CVD of 6%... I propose to equalise the duties on both kinds of coal and levy 2% customs duty and 2% CVD," Chidambaram said.

The Finance Minister also announced the reduction in the basic customs duty on bituminous coal from 5% to 2% and CVD from 6% to 2%.

As far as Bituminous coal is concerned, the country has a import target of 30 million tonnes.

The country dependence on imported coal is shooting up with a large number of power capacities coming up and CIL not being able to supply adequate coal.

The country's coal import which shot up to 100 million tonnes (MT) from April to December last year, will further scale to 185 MT by FY17.