Tax increases put pressure on Indian coal-fired generators

• 11 years ago (2013-03-01)
• Junior Isles

North America 1021

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India is to increase import taxes on thermal coal and export duties on bauxite in order to increase government revenue and plug its widening budget deficit, Finance Minister Palaniappan Chidambaram has said.

Imports of steam and bituminous coal, both favoured by power producers, will attract duties of 2 per cent each, while Bauxite exports will be taxed at 10 per cent instead of being duty free, he said.

This move by government will increase generating costs for Indian electricity companies, which have been forced to resort to coal imports because of a domestic shortage stemming from the poorly managed supply chain.

The tax on exports of bauxite, meanwhile, may boost local supplies and boost aluminium output.

“Thermal power plants using imported coal entirely will see their power generation cost increasing by at least 5 to 6 paise per kWh,” said Debasish Mishra, senior director at Deloitte Youche Tohmatsu India Pvt. in Mumbai. “The ones more dependent on imported coal will see a higher price rise than those using local coal or with limited blending.”

Coal imports by Indian power producers, steelmakers and cement makers was 100 million metric tons in the nine months up to Dec. 31. Chidambaram stated that imports are expected to reach 185 million tons in the year ending March 2017.

“The costs for utilities importing coal will increase as a large portion of the commodity is of the steam variety on which customs duty has doubled,” said Rakesh Arora, head of research at Macquarie Capital Securities (India) Pvt. “There won’t be any major impact on imports as the requirement of coal for power is quite high.”