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Power projects may get customs waiver on coal
February, 15th 2012

The government is considering customs duty waiver on coal imports to reduce the impact of a steep rise in the fuel's international price on mainstream power producers without raising electricity tariffs. The relief may come as part of the tax proposals in the Budget, officials said.

Power secretary P Uma Shankar made a strong pitch for the waiver at a recent meeting with revenue secretary R S Gujral on issues affecting the power sector, officials said. The proposal is also part of the tax sops recommended by a ministerial panel under power minister Sushilkumar Shinde set up to ameliorate sectoral woes.

Coal imports carry a 5% customs duty and an equivalent countervailing duty to offset the excise duty on Coal India Ltd's output. Power producers supplying to the grid, especially those fully dependent on imported coal, have been pressuring the government to provide duty relief or increase tariff ever since international prices shot up.

International coal prices have risen to between $100 and $155 per tonne, depending on the quality. Coal India, in contrast , sells the fuel at $50-55 per tonne but neither meets the demand fully nor matches the quality of imported coal. This forces more or less all power producers to resort to imports. Domestic coal-fired plants blend the imported fuel to improve burning quality of local fuel.

A galaxy of top power project promoters, including Ratan Tata, Anil Ambani, Gautam Adani, Naveen Jindal and Anil Agarwal, last month lobbied PM Manmohan Singh, FM Pranab Mukherjee and coal minister Sriprakash Jaiswal on various issues plaguing the sector.

Relief from shortage of fuel - both coal and gas - and their high costs took up most of the discussions. The waiver, if and when it comes, would exclude the captive plants. It would benefit players such as Tata group's imported coal-based Mundra ultra-mega power project, Adani group, JSW and R-Power, which either have imported coal-based plants or use imports to blend domestic fuel.

Power producers supplying to the grid were to import 40 million tonnes of coal - valued at $5 billion at an average price of $125 per tonne - in 2011-12.

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