Indian Power Min Seeks Withdrawal of Import Duty on Coal

The ministries of power and finance are likely to lock horns over a proposal to withdraw customs duty on imported coal in India. Apprehensive that the North Block may not be keen to entertain a proposal which entails revenue loss for the exchequer, the power ministry has moved to secure support of the Planning Commission on the issue.

Taking up the cudgels for power projects hit by the unprecedented increase in international coal prices, the power ministry has moved to push for removal of customs duty on coal to provide relief to power projects using imported fuel.

Currently, a 5% basic customs duty is levied on coal. Sources said power secretary P Uma Shankar has sought withdrawal of the customs duty on coal in a letter sent to the finance ministry recently.

"Global coal prices have shot up in the recent past by 35%-40% and further, imposition of 5% customs duty has led to a steep rise in the cost of generation for imported coal based power plants, thereby making such plants commercially unviable," Uma Shankar has written in a letter sent to the finance ministry recently.

Key coal exporting countries like Indonesia and Australia have changed their coal pricing methodology in recent months and sent international coal prices skyrocketing. Since increase in fuel cost cannot be passed on to buyers under the contract, many of these projects have become commercially unviable. Tata Power's Mundra and Reliance Power's Krishnapatnam ultra mega power projects and Adani Power's Mundra power plant are among the projects to be hit hard by the increase in international coal prices.

"Since under the present regulatory regime, power purchase agreements (PPAs) cannot be reviewed, such levies introduced subsequent to execution of PPAs are not pass-through. Accordingly, the cost escalation due to these levies has adversely affected developers," the letter said.

The power secretary has cited shortfalls in coal availability from domestic sources to buttress his ministry stand on the issue.

"Considering that import of coal has been mainly due to inadequate availability of coal from the domestic sources, it is desirable that the customs duty on coal be withdrawn so that consumer benefit to some extent," Uma Shankar said.