The Finance Bill passed by the Lok Sabha yesterday, to give effect to the Union Budget proposals, has removed the 2014 time bar it had earlier proposed on the duty exemption for thermal coal.
In its earlier Budget proposals, the finance ministry sought to exempt thermal coal (also called steam coal, and used in thermal power generation) from the basic customs duty of five per cent and the concessional countervailing duty of one per cent till March 31, 2014. The exemption with the time bar of 2014 was also extended to natural gas and liquefied natural gas (LNG), uranium concentrate and sintered uranium dioxide in natural and pellet forms.
However, the final Bill removed the time bar for coal; it stays for natural gas, LNG and uranium derivatives. Official sources said the decision to exempt coal indefinitely from import duty was done to perk the infrastructure sector. “Two years is a very small gestation period for setting up power plants or any energy-intensive ventures using steam coal as fuel Therefore, the time period for granting the exemption from basic customs duty and CVD has been extended indefinitely,” they said. Adding that domestic producers of thermal power were already under stress because of high prices of coal.
Coal-fired projects have already been hit by costly imported fuel, which is eroding the margins of power producers. Payment from state electricity boards comes with a lag and is not market-related. There is no clarity yet on cheaper domestic supplies. At this time, full exemption from import duty and for unlimited time is a big relief, said an industry source.
Coal is the fuel used to generate most of India’s electricity, with 78 per cent of domestic production of the fuel being consumed by power projects. India has an installed power generation capacity of 190,593 Mw, of which 55.3 per cent or 105,437 Mw is coal-based.
Key coal exporting countries, such as Indonesia and Australia, have changed their pricing in recent months, pushing up global prices substantially. Since this increase cannot be passed on to buyers under the existing power purchase agreements, many projects dependent on such imported coal threaten to become commercially unviable. There is also a shortage in the domestic market. According to the Annual Plan Document 2011-12, the country’s demand for coal is likely to be 696 million tonnes (mt) while the projected domestic production is 554 mt. The gap will have to be met through imports. Government-owned Coal India Ltd, which has a near-monopoly over mining, has projected an overall shortage of 142 mt in FY12, to be met through more expensive imports. Imported coal costs have more than doubled to $120 per tonne since FY09.
CVD is also called an anti-subsidy duty. Besides industry representations, the power ministry had also suggested to the finance ministry for a review of the coal import duty structure, since the additional duty on high global coal prices was adding to the cost.
