The expectation was, the Budget would offer incentives to encourage mechanisation in coal mining - especially in environmentally sustainable underground mining - as part of the big-bang agenda to increase fuel production by three times in five years.

But the finance minister Arun Jaitley denied looking beyond revenue generation.

In his Budget speech on Saturday, Jaitley lauded the role of coal auction in generating resources to States and doubled the coal energy cess from ` 100 to ` 200 a tonne to finance clean-environment initiatives.

Considering nearly 550 million tonne domestic production of coal, the doubling of cess would bring home nearly Rs 5500 crore additional revenues a year, bulk of which will be contributed by Coal India (CIL).

CIL chairman Sutirtha Bhattacharya denied any impact on the company as the cess would be recovered from the consumer. It means the cost of power generation at pit-head would increase by 5-6 paise a unit.

Pricing ability impacted

Former CIL Chairman Partha S Bhattacharyya, however, pointed out that the hike in cess may impact the miner’s ability for price rationalisation.

Traditionally, CIL fetches wafer thin margins on low quality thermal coal (3700 to 4300 GCV), constituting bulk of its production. Operating profits are generated from sales of high quality coal at import parity price and open market sales (e-auction).

But the crash in global commodity prices put pressure on per tonne realisation from e-auction as well as high quality coal. The result is a steady fall in profitability over last couple of quarters.

As a counter measure CIL was seriously considering marginal rise in lower grade fuel prices. Partha says the scope for price rationalisation were minimised by the Budget announcement, as the low quality fuel consumer would be most impacted by rise in cess.

UG mining unprofitable

Squeezed margins should also have an impact on the country’s ability to adopt environmentally sustainable mining practices.

Mechanisation is currently a costly proposition due to heavy servicing cost of imported equipment. The most affected are underground mining. With price of fuel remaining same, there is simply no economic logic for miners to go for acquire high cost underground technologies.

Naturally underground mining currently contribute a mere 8 per cent of total production.

Citing examples of power sector, sources said, Jaitley could have incentivised underground sector by offering import duty waiver on equipment or by setting up a technology fund.

The government in the past offered fiscal incentives to promote use of fuel-efficient super critical technology in electricity generation.

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