Coal cess hard on consumer industries

Our Bureau | | | Updated on: Jan 27, 2018


Steel sector may be particularly affected

The proposal to double ‘Clean Energy Cess’, rechristened as ‘Clean Environment Cess’, from ₹200 to ₹400 a tonne, will lead to an increase in the cost of electricity and put pressure on the bottom line of steel and cement makers. With this the NDA government has increased the cess by a significant ₹300 a tonne over the last two years. The Centre had also imposed surcharge on royalty twice (in January and August) in 2015.

It is estimated that the cess will increase the cost of electricity generation by 10-12 paise a unit for utilities using G11 to G13 grade coal. The increase is a pass-through for utilities like NTPC that operate in a regulatory tariff regime. However, generation companies, especially in the private sector, that depend on open market sales may feel the pressure on their bottom line. As against NTPC’s average generation cost of ₹3.20 a unit, the round-the-clock tariff in the open market hovers between ₹2.50 a unit and ₹2.80 a unit, due to excess supply scenario. Steel and cement sectors, operating in the open market, will face cost push. Considering the pressure on prices, due to flood of imports, steel sector may be particularly affected. Vizag Steel for example estimates an ₹150 crore impact. The increase in cess will increase the share of taxes and royalties in ex-mine price of coal significantly.

Coal India currently earns ₹610 against the ex-mine price of ₹1,034 for G13 variety. After the latest round of increase, taxes will constitute nearly 51 per cent of the ex-mine price of domestic coal.

The cess is also applicable on imported coal. Considering FOB price of $20 to $26 for 3800 kcal to 4200 kcal Indonesian fuel, there will be significant increase in prices of imported coal.

“The spiralling of taxes and duties on coal over the last two years is leaving a negative impact on consumer industries,” said Subhasri Chaudhuri of Coal Consumers’ Association of India. The association represents both large and medium industries.

The rise in taxes will also reduce Coal India’s ability to enhance fuel prices significantly in the face of the ensuing round of wage agreement in July this year. Wages of over three lakh workers of the company went up by 34 per cent during the last agreement, necessitating a rise in the price of fuel that has been stagnant for last two years in the face of falling margins.

Published on March 01, 2016
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