India Likely to Raise Coal Tax Issue with Australia, Indonesia.

New Delhi: India may raise with Australia and Indonesia the issue of policy changes that has made coal imports expensive for Indian companies that own mines in the two countries.

Rising demand at home prompted Indian and Chinese companies to invest in the coal sector in Australia and Indonesia, causing prices of thermal and metallurgical coal to rise and leading governments there to seek a greater share of revenue.

While Indonesia has implemented price benchmarking to capture higher royalty and income taxes, which are pegged to the price of coal, Australia has imposed a Minerals Resource Rent Tax (MRRT)—a tax on profits generated from the exploitation of non-renewable resources, levied on 30% of so-called super profits accruing from the mining of iron ore and coal in Australia.

These interventions will affect the financial viability of imported coal-based power projects such as Tata Power​ Ltd’s Mundra project and Reliance Power Ltd’s Krishnapatnam project—both of 4,000MW each—because their fuel costs are set to overshoot expectations.

Both these firms have acquired coal mines in Indonesia to fuel their projects. While work has stopped on the Krishnapatnam project, Tata Power has been lobbying the Union power ministry in pursuit of a higher tariff. It will also increase the cost of coal procurements for Indian power and steel companies.

“We shall try to initiate talks with Australia and Indonesia,” coal minister Sriprakash Jaiswal said. “The Indian government will most certainly take up this issue,” he said. “We have also raised it and will request MEA (ministry of external affairs) also to take it up. But we need to know with some authority that this has been done for sure. We need an authentic letter and then we will tell the MEA that due to this there will be a big impact on coal imports so kindly look into it and ask for some relaxation so that imports are not impacted.”

India is dependant on coal for power generation. Of the country’s installed power generation capacity of 182,345MW, 54.7% is coal-based; much of the targeted addition of 100,000 MW during the 12th Plan (2012-17) is also coal-based. It takes around 5,000 tonnes of coal to generate 1MW of power every day for a year.

Questions emailed to an MEA spokesperson on Wednesday remained unanswered until press time.

While a RPower spokesperson declined comment, a Tata Power spokesperson did not respond to emailed queries on Wednesday till press time.

India is confronting its worst coal shortage. Power firms consume 78% of the total domestic production of coal. The size of the market for imported coal that goes into power generation in India is around 50 mt a year, and is expected to double by 2012 as more thermal power projects come up.

“Resource nationalism is on the rise,” said Dipesh Dipu, director of consulting, energy and resources, and mining, at Deloitte Touche Tohmatsu India Pvt. Ltd.

“It seems unlikely that the trend will be reversed since local project-affected population in host countries demand more and more and there is always a sense that foreign countries are benefiting from the natural resources of host countries that never seem to get enough,” he added. “Government-to-government relationships in the pursuit of favourable treatment to Indian power generation or steel firms may have limited success.”

Source : livemint.com