Rail freight hike on coal may increase electricity tariffs

The proposed increase in coal freight rate by 5.7% in the Railway Budget 2013-14 today will have no effect on the coal sector but may lead to a marginal increase in the electricity tariffs.

Railways Minister Pawan Kumar Bansal sought to increase the freight rate on coal from Rs 685.10 per tonne, to Rs 724.80 - a hike of 5.79%.

Coal India Ltd (CIL) Chairman and Managing Director S Narsing Rao said: "Coal sector, including Coal India will have no effect due to increase in coal freight charges. However, the increase will borne by power generating companies and might lead to increase in electricity chargers."

He also said the increase may lead to higher landing cost for generating companies by up to 3%.

According to industry analyst the hike in coal freight charges will be neutral to coal sector but will hit downstream sector using coal such as power, cement and steel.

"The increase in freight charges would increase electricity tariff by less than one% as freight is very small component of overall cost of electricity," Kuljit Singh Partner Ernst & Young said.

Bansal also said that the recently revamped participative policy enabling partnership with large mines, industry and investors addresses the specific concerns of private investors.

An investment of up to Rs 9,000 crore is expected under these projects including Rs 4,000 crore for coal mine connectivity.

Analysts welcomed it saying that lot of problems were being faced by coal companies in offtake from these mines.

"This is a good step and it would help in more evacuation of coal," Singh said.

The average daily rake loading last month by CIL, which accounts for 80% of domestic coal production, was 210 rakes as against 185 rakes in January last year.