Coal cost to go up, so will power bills

OUR BUREAU, THE HINDU BUSINESS LINE
NEW DELHI, APRIL 12:
Coal and lignite are set to become dearer as the Government has approved revision in royalty rates to a flat 14 per cent and 6 per cent of the prices respectively.

The new rates are likely to come into effect in about a month after the revision is notified. Companies such as Coal India and Singareni Collieries are expected to pass on the royalty hike to consumers.

The Cabinet Committee on Economic Affairs on Thursday approved a proposal to charge royalty based on the market value of the minerals, excluding taxes, levies and other charges (ad-valorem).

The royalty hike applicable to both state-run mining companies and captive mine owners will result in electricity bills shooting up for the consumers. Power producers said it will add to the price of power. Since it is in cost-plus regulated tariff, this shall be part of variable cost, that is, fuel cost, they said.

This revision comes after a gap of almost five years as the present royalty rates were notified in August 2007. The present rates are calculated through a hybrid formula consisting of both ad-valorem and fixed price per tonne depending on the grades of coal. Other major minerals like iron ore and bauxite are already being charged royalties on value of the product basis.

Coal India shares ended marginally higher at Rs 332.70 on the BSE on Thursday. Sources at Coal India said the impact of the royalty hike has to be worked out for the 17 bands under which different grades are classified. However, the hike is likely to be steeper for higher grades of coal, used by cement and steel sector, they said.

Twelve mineral-rich States including Jharkhand and Orissa that have been demanding this hike will now see an average increase of 17.31 per cent in their royalty earnings from coal. The average rise in royalty earnings for lignite bearing states like Tamil Nadu will go up by 14.53 per cent. Totally, the States will earn additional annual revenue of Rs 1,050 crore against the existing Rs 5,950 crore.

The royalty revision is not to be extended to West Bengal, unless the cesses imposed by the State Government are withdrawn, according to an official statement. West Bengal collects 25 per cent cess on ad valorem basis on the coal produced in the Stateas a tax on the coal bearing land. The overall earnings from coal per million tonne in West Bengal is reportedly nearly four times that of Jharkhand or Orissa, sources said.

For other States, which levy cess or other taxes on specific coal bearing tracts, the revision of royalty allowed shall be adjusted for the local cesses or such taxes so as to limit overall revenue to the ad-valorem royalty yield, it said.

For captive mines, the royalty would be calculated on the basic pithead price of run of mine coal and lignite as reflected in the invoices, excluding taxes, levies and other charges of Coal India, the statement said. “It will impact the profits of cement and steel makers, who buy coal through e-auction as they won't be able to pass on the cost hike easily,” said Mr Bhavesh Chouhan, analyst at Angel Broking.