Coal news and updates

Budget 2015-16 a mixed bag for coal consumers

March 2: Union Finance Minister Arun Jaitley, in his Union Budget 2015-16, presented in Parliament on February 28, raised the import duty on metallurgical coke to 5% from the existing 2.5% while increasing the clean energy cess on coal by Rs 100 per ton and increasing the service tax by 2%.

“There is nothing as such for the coal industry in the Budget and we feel that considering the growing demand for power in the country, overall, coal imports will continue to rise despite an increase in prices due to measures announced by the finance minister,” said an official from a leading coal trading company.

ICMW understands that power demand in India will continue to rise as a large part of the country is still not receiving sufficient supply of power due to various reasons.

ICMW also understands that if the government wants to provide 24x7 power to all, the generation will have to be increased and for that coal requirement will go up.

As the possibility of availability of sufficient quantities of domestic coal is not there in the immediate future, imports will continue to rise irrespective of any increase in duty as these would generally be determined by the price of coal in international markets.

“If the price of coal is low, as it is currently in the international markets, Indian companies will increase their coal imports. But if there is spurt in international coal prices, the possibility of which looks bleak in the medium to long term, the rate of growth in the import of steam coal by Indian companies may taper off,” an official from a trading company said.

“The current supply of power in metropolitan cities may be adequate to a great extent, but most of the other state capitals continue to suffer from huge power shortage, while rural India hardly gets power for 8-12 hours a day. In such a scenario, if generation is to be increased, there will be requirement of coal and in the absence of adequate availability of domestic coal, imports will continue to rise,” the official added.

The official, however, said because of the recent decisions by the government, the cost of coal will rise in the country.

While an increase in freight rates was announced in the Railway Budget on February 26, the increase in the service tax to 14% from 12%, increase in clean energy cess to Rs 200 per ton from Rs 100 per ton, the cost of coal will definitely go up, he said.

The official, however, pointed out that it was not clear whether the education cess too would be merged like the way service tax has been merged and raised to 14%. “If the education cess is merged then the cost of coal will rise accordingly. All these things will definitely lead to increase in the cost of coal at consumption points,” the official added.

“There appears to be some uncertainty over the clean energy cess because while the finance minister said in his Budget speech that the cess is being raised from Rs 100 to Rs 200 per ton, the Finance Bill says that the increase in the cess is to Rs 300 per ton from Rs 100 per ton,” said an official from another leading trading company.

However, ICMW learnt from industry sources that an effective increase in the clean energy cess would be from Rs 100 per ton to Rs 300 per ton and the anomaly in the Finance Bill will be corrected.

In line with expected increase in coal imports, the import of metallurgical coke too is expected to rise continuously despite the increase in duty because there is availability of cheap material from overseas. Even after paying the increased duty, the imported material would still continue to be cheaper as compared to domestic met coke, an official from a steel company said.

Most of the smaller steel plants in India do not have their own cokeries and they depend on merchant cokeries and imports to meet their metallurgical coke requirements, an official from a steel company said.

“Because of availability of imported met coke at a much lower price, such steel makers will definitely buy it and will not bother to think about the fate of the domestic merchant coke makers,” the official added.

However, Arun Jagatramka, Chairman and Managing Director of Gujarat NRE Coke Ltd, a leading merchant coke manufacturer, said: “The increase in the customs duty on met coke to 5% is a step in the right direction and can be considered to be overall positive, though we had expected something more.”

“It certainly differentiates between the duty of raw material and for the value addition that is done by the domestic met coke manufacturing industry and rectifies the anomaly that was introduced in the last Budget when both the duties were made same,” Jagatramka said.