The Hindu Business Line : Govt plans new coal royalty system

The Government is planning a new royalty structure for coal that would have a fixed as well as a variable component to replace the existing system of a fixed rate per tonne of coal extracted. If the new system is put in place, revenues from coal royalties could go up by 5-10 per cent, sources said.

That may eventually lead to an equivalent increase in coal prices if the producing companies decide to pass on the increased costs to the consumers.

The current formula being put forward by the Coal Ministry was originally suggested by the Prime Minister's Advisory Council headed by Dr C. Rangarajan, the sources said.

The Hoda committee set up by the Planning Commission had also recommended a transition to the ad valorem system from the current fixed sum system.

New formula

In the latest formula, State Governments receive a predetermined fixed amount per tonne of coal mined. So, even if coal prices go up, the State Governments do not get a share of it, and the mining companies book all the profits.

As per the new formula, the new royalty amount would be determined by the summation of a fixed amount per tonne that would be decided by the Government plus a fixed percentage of the selling price of the coal.

Six rates

As of now, there are six rates of royalty applicable to six grades of coal produced in India. For Grade I coking coal, it is Rs 250 a tonne; for Grade II, Rs 165; for Grade III, Rs 115; for Grade IV non-coking coal, Rs 85; and for Grade V non-coking coal, Rs 65. For coal produced in Andhra Pradesh, the applicable rate is Rs 90.

Sources said that the new formula is a middle way to accommodate the interests of both coal-producing and coal-consuming States, as coal royalty goes to the respective State's exchequer and offers a stable source of revenue to them.

The coal-producing States had been demanding the introduction of an ad valorem royalty system since it would add to their revenues with the dynamics of coal prices.

On the other hand, States without coal reserves, but with some of the major consuming sectors such as cement, steel and power, had been demanding continuation of the existing system and status quo be maintained.