India: Government raises duty for coal users

Tuesday, April 05,

In a surprise move, Ministry of Coal has sent letters to coal users for recovering additional duties in the form of excise duty of 5%..* (CVD in case of imports). To recap, the recent union budget had prescribed an excise duty of 5% for coal, lignite, peat, coke, etc. with CENVATcredit facility while it had prescribed a concessional rate of 1% without CENVAT credit facility. However, with a 5% increase in coal prices end user industries such as power IPPs face earnings risk of 5‐10%, while for cement players, earnings could drop by 2‐3%.

What is the increase in Indian coal prices?

Starting from April, 2011, prices of domestic coal could go up by INR 60‐120/t; while for players using imported coal, the cost increase could be INR 400‐INR 500/t.Various industry channel partners including thecompanies and coal traders suggest that Indian coal customers are likely to represent to the various ministries to reverse these duties. But in the interim, the prices for coal have risen sharply for all the users.