The Hindu Business Line : Duty cut may ease burden of coal consumers

BULK coal consuming industries, particularly in the coastal states, have reason to be happy with the reduction of import duty on non-coking from 25 per cent to 15 per cent, and abolition of special additional duty (SAD) of 4 per cent, as announced by the Union Finance Minister.

These industries may now be able to offset a portion of the landed cost of non-coking, although imports of both non-coking and coking coal have still remained "unattractive" because of sharp escalation of coal prices in the international market coupled with the burgeoning increase of shipping freight.

Though the import duty reduction on steam (non-coking) coal has been welcomed by the coal consuming industries, it is too early to assess the actual price difference between imported and domestic coal, since the prices of steam coal in the international market tend to rise further following strong buying support by China. In fact, China was a major exporting country for coking and non-coking coal. But in recent times, it has turned net importer of coking and non-coking coal because of massive expansions of its steel and power sectors.

Faced by the shortage of quality coal at reasonable price from domestic sources, major coal consuming industries such as steel, power, cement, fertiliser and paper in the coastal belt have resorted to importing coal largely from South Africa, Australia and Indonesia. But many of them recently stopped importing coal due to higher landed cost. The import duty reduction is expected to give some to relief to them who may find imports of coal from South Africa and Indonesia less costly. Meanwhile, Coal India Ltd (CIL) and its subsidiaries have said in the era of coal scarcity, they have been able to meet the requirement of core sectors fully, leaving a marginal shortfall in meeting the requirement of non-core sector consumers who will now benefit from the import duty reductions. A CIL source said, "The domestic coal sector may suffer from some disadvantages, but in the larger interest of bulk consumers, CIL has never been adverse to such reductions in basic import duty on coal."

It was pointed that since the country's energy security had to depend on domestic coal production, infrastructure industry status could be accorded to the coal sector. Although some relief had been provided on customs duty for import of equipment and spares for new coal projects as well as for replacement purposes, it was not enough.

The source to begin with, mega-coal projects such as Magadh, Amrapali, Amlori Expansion, Nigahi Expansion, Rajmahal Expansion, Lingaraj Expansion, which are dedicated to certain mega-power projects, could be given special duty relief. It was argued that coal projects linked with/dedicated to such mega-power projects could be treated an integral part of the power projects. Therefore, coal mining and power generation should get similar treatment in duty relief.

It was cautioned that although CIL registered a growth of 4 per cent in coal production as well as off-take till December 2003, in the current fiscal, it may not be able to match the growth of power sector unless the same duty, as enjoyed by the mega-power projects, is provided to the coal major for its new mega projects.

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