Generation cost of imported coal-based power plants to go up

Your electricity bill could go up this year, courtesy the changes proposed in the Budget and the rail budget.

In the Budget, Finance Minister P Chidambaram brought steam coal under the purview of customs duty. He also equalised duties on both steam coal and bituminous coal to levy two per cent customs duty and two per cent countervailing duty (CVD).

Earlier, it was just one per cent CVD, which could be claimed back by the company importing thermal coal used in power plants. In this Budget, there is a levy of two per cent additional customs duty and another one per cent CVD. Although CVD can be claimed back, the two per cent 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 five-six paise a unit. According to 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 the customs department has been raising questions on the end-purposes of imported coal. We are thankful for the ministers announcement to equalise the customs duty and CVD for steam and bituminous coal used in thermal power generation, as this provides clarity. Otherwise, claims were being raised by the customs department, said Anil Sardana, managing director, Tata Power.

Domestic coal-based power plants are in no better shape. The rail budget proposed a 5.8 per cent rise in freight charges by way of a fuel adjustment component. The charge would be automatically adjusted and passed on to the customer twice a year. This could impact by as much as another five paise to the power generation cost.

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 cost of imported coal, said Pradeep Lenca, CEO (power business), Aditya Birla group.

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 seven-eight paise a unit to the generation cost.