Indonesia's 25% tax plan on coal exports to hit Indian power firms.

MUMBAI: Indian companies, cheering the Presidential decree forcing Coal India to fuel their power stations, face a fresh bout of uncertainty as Indonesia has proposed a 25% tax on coal exports which would make many plants unviable and encourage India to turn to Africa and Australia for fuel.

Indonesia's industry ministry, which proposes to impose this tax to prevent overexploitation of its mines, plans to double the levy to 50% in 2013, according to agency reports.

Indonesia's vast coal reserves had attracted large investments by companies, such as Tata Power, Adani Power and Reliance Power, who bought assets in the country to fuel their projects in India, while others, such as Lanco Infratech, have long-term pacts with miners and traders in the country.

Indian power producers are rapidly losing faith in Indonesia as this is the second time that the country has rattled them.

Earlier, it had upset the economics of ultra mega power plants ( UMPPs) being set up by Tata Power and Reliance Power as it changed its law to raise the export price of coal. Companies are struggling to honour power purchase agreements, and are seeking tariff revision.

"The 25% tax would be a very heavy burden on us and make power unaffordable. Companies generating power from imported fuel are finding it difficult to get buyers and with any more increase, it would be completely unviable," said Ashok Khurana, director general of the Association of Power Producers.

India, one of the biggest importers of Indonesian coal, currently runs around 9,000 MW capacity on coal from the country, and has another 10,000 MW under execution, Khurana said. Mega projects of companies, like Tata Power and Reliance Power, have been hurt after Indonesia's decided to link coal prices to international benchmarks, making the coal from the country almost 150% more expensive.

Experts said that an export tax of 25% could lead to a further increase of 55-65 paise per unit in the cost of generation for power.

"Indonesia currently has a reference rate of $120 per ton and now they are planning a tax over and above this. This is clearly a signal from Indonesia that they want to curb coal exports, especially to India," Khurana said.

Indonesia has several miners, including world's largest thermal coal exporter Bumi Resources. According to estimates, the country's coal output is seen rising to 390 MT in 2102, with the biggest share of its exports going to China and India.

India is likely to source around 120 million ton of thermal coal from Indonesia this year, surpassing China whose shipment is pegged at around 100 million tons, experts said.

"China can ramp up its production to reduce reliance on Indonesian coal. But it would be difficult for Indian utilities and they may have to start looking out in Australia and Africa. But people who are already invested in Indonesia would be worst affected," said Debasish Mishra, senior director, consulting, Deloitte Touche Tohmatsu India.

Tata Power has said that its 4,000-MW Mundra UMPP would be incurring losses due to the change in Indonesian policy last year as its power purchase contract provides for cost escalation for 45% of fuel cost.

Reliance Power, which won the 4,000-MW Krishnapatnam ultra mega power project quoting a bid without any escalation, has halted work at the project on similar concerns.

Source : economictimes.indiatimes.com