Increase in clean energy cess on imported coal: Adani, GVK and Tatas to redraw foreign assets

Indian companies having coal mines abroad, such as Adani, Tata Power and GVK, will have to redraw their strategy.

They are staring at increased costs, with the new Union Budget proposing to increase the clean energy cess on imported coal from Rs 50 a tonne to Rs 100 a tonne, and to raise the basic customs duty on bituminous coal to 2.5 per cent from the earlier two per cent.

Adani and GVK have coal mines in Australia. Tata Power has one in Indonesia.

All were planning to mine coal abroad and import it to India to fuel their power stations. Analysts now it will be cheaper to produce the coal in India.

Beside, the Budget move would negatively impact power and metal producers based on imported coal, such as JSW Energy, Nalco and Hindalco, and steel companies. Seshagiri Rao, chief financial officer of JSW Steel, says in view of the current shortage of domestic coal for both steel and power sectors, the duty raises should be reconsidered.

Analysts say over time, Indian companies with coal mines abroad will have to reduce their stake to de-risk their strategies.

Just before the Budget, Tata Power had announced signing an option agreement to sell its five per cent stake in its Indonesia mine for $250 million. The Indian company also has the option to sell the rest of the stake to its Indonesian partner.

The Adani Group and GVK have also said they are looking for partners to sell part of their stake in their Australian coal mines and railway projects.

The Adani project involves investment of a massive $15 billion more to develop the coal mines, a port and a railway line connecting the mines to the port. When ready, it will be the biggest coal mine development project in Australia. The project is expected to start exporting coal from 2017.

In Australia, the Adani family acquired a long-term lease in June 2011 for a 50 million tonne per annum coal export port terminal, at Abbot Point.

The group proposes adding another 70 mtpa of capacity over two stages at Abbot Point, and a three-stage 90 mtpa development at Dudgeon Point, now on hold. The group plans to build a new railway line for $1-2 bn and invest another $5 bn in the development of a mine.

U-TURN AFTER BUDGET

• While both Adani and GVK have coal mines in Australia, Tata Power has one in Indonesia
• The Union Budget has proposed to increase clean energy cess on imported coal from Rs 50 a tonne to Rs 100 a tonne
• It has also proposed an increase in basic customs duty on bituminous coal to 2.5% from 2% earlier
• The move may also negatively impact power and metal producers based on imported coal, including JSW Energy, Nalco and Hindalco
• Adani group and GVK have said they are looking for partners to sell part of their stake in their Australian coal mines and railway projects