Excessive cess by the West Bengal government has forced Eastern Coalfields, a sick subsidiary of Coal India, to increase coal prices, resulting in chronic decline in sales.
Sources said the company may have to be shut if the cess issue is not tackled soon.
ECL, which has been referred to the Board for Industrial & Financial Reconstruction (BIFR), is described by ICICI as overburdened with cess. The BIFR has appointed ICICI as the operating agency for reviving ECL.
There is a steady erosion of the client base of ECL mainly due to the higher price of its coal. At one time, 65 per cent of the total consumers of the country bought coal from ECL.
West Bengal's cess on coal is 47 per cent ad valorem. For Ranigunge B grade coal, the impact of cess is Rs 476 per tonne. For G grade coal it is Rs 402 per tonne.
Compared to coal produced in Bihar by other CIL subsidiaries, there is a price difference of Rs 480 in Grade A coal, Rs 422 in Grade B, Rs 370 in Grade C and Rs 309 in Grade D. This is because the Bihar government charges royalty of only Rs 135 per tonne. Even if ECL increases production it will be difficult to sell because of the high price.
ECL's losses mounted to Rs 542 crore in 1997-98 from Rs 341 crore in 1996-97.
In 1997-98 ECL could produce 27.4 million tonnes of coal which was below the target 30 million tonnes. The original target of 32 million tonnes in the current year, to compensate the production loss in the previous fiscal, was scaled down to 30 million tonnes due to lack of demand.
