Coal news and updates

Power, steel output costs set to rise on hike in duty on coal

July 10: The cost of power generation and production of steel in India is set to increase by around 1% and 2.5% respectively following an increase in import duty on steam coal by 0.5% and imposition of 2.5% duty on coking coal and metallurgical coke, industry experts believe.

The production cost of steel and generation cost of power will also go up because of an increase in clean energy cess to Rs 100 per ton from existing Rs 50 per ton as this will impact both steel and power sector, the experts added.

In fact, the cost of domestic coal will also rise by Rs 50 per ton because of increase in clean energy cess, they said.

“Considering the euphoria generated by the government to bring down cost of power, a majority of the people in the industry were expecting complete waiver of customs duty on imported coal. Instead, the finance minister has raised the duty to 2.5% from the existing 2% and this will surely have impact on the cost of power generation,” an official of a power generation company told ICMW.

“The waiver in duty on imported steam coal was also expected on the ground that the power minister had clearly indicated that there would be some relief to power sector companies in order to encourage the sector. But instead of waiving the duty on coal, there is an increase in duty,” the official added.

Earlier, during the day, while presenting his maiden Budget, Finance Minister Arun Jaitley claimed that he is rationalising the duty structure on all non-agglomerated coal as part of tax rationalisation measures.

“At present, coal attracts customs duties at different rates. I propose to rationalise the duty structure on all non-agglomerated coal at 2.5% basic customs duty and 2% CVD. Henceforth, anthracite coal, bituminous coal, coking coal, steam coal and other coal will attract the same duty,” Jaitley said while presenting the Union Budget proposals for 2014-15.

“This will eliminate all assessment disputes and transaction costs associated with testing of various parameters of coal,” the minister said.

It is to be noted that till now there was no duty on import of coking coal and anthracite coal, industry experts said, adding, “There was no duty on import of coking coal and anthracite coal because India does not have sufficient reserve or production of these two types of coal, which are primarily required in steel making.”

Because of ‘rationalization measures’, there will be duty of 2.5% on import of coking coal, anthracite and also on metallurgical coke manufactured out of coking coal, which was till now exempted from any duty due to similar reason that India does not have coking coal reserves, the officials said.

However, supporting the logic, an official of a Kolkata-based private sector steel maker said, “There were definitely some ambiguity related to PCI coal, semi-soft type of coking coal as these coal were thermal coal, but were being used for steel making and this duty rationalization will definitely reduce the headache for some companies, but at the same time will increase the cost for steel making.”

It is to be noted that almost all steel makers in India use semi-soft grade coking coal and a few like SAIL and Tata Steel use PCI coal. Also some companies like JSW Steel who has Corex technology use a particular type of steam coal for steel-making, instead of coking coal or coke.

“Corex coal is basically thermal coal or steam coal, but it is used directly for steel making and companies using such technologies might be having some issues with the customs department as they might have been claiming exemption on the ground that such steam coal was being used for steel making,” the official of a steel company said.