Cess on captive coal mines to hit steel, cement firms

New Delhi | Updated: Mar 22 2014, 11:14am hrs
Theres bad news in store for cement and steel companies. The coal ministry has readied a note suggesting that these firms and sponge iron makers that have captive coal mines may have an undue advantage and this could be offset with a new impost.

Already, these companies pay royalty to the respective states as commercial coal producers like Coal India do. Coal India alone paid R7,249 crore as royalty in FY13. The royalty is levied at 14% (ad valorem) by all states except West Bengal, which charges R6-7 per tonne.

What the coal ministry wants is an additional cess on the quantum of captive coal produced. It has sought the finance ministrys opinion on the matter and given the less-than-budgeted tax receipts growth in recent years, the finance ministry is likely to endorse the same. Of course, as the electoral code of conduct is in place, a final call on the coal ministrys proposal will be made by the new government likely to take over by May-end.

Sources said the coal ministry has drawn a distinction between power companies with captive coal mines and cement and steel companies with this facility. Power producers are bound by long-term power purchase agreements with state utilities and have limited freedom of selling power in the open market whereas steel and cement prices are fully market-determined.

The rationale behind the coal ministrys proposed for increase in taxes on steel and cement firms with own coal mines is that while they are insulated from the market vagaries as far as this key input is concerned, their output prices are market-determined, leading to an undue advantage. The exact quantum of the cess is yet to be determined.

The proposal, if implemented, could dent the revenues of government-owned companies such as SAIL and private players including Tata Steel, Jindal Steel & Power, Monnet Ispat and Energy, Bhushan Steel & Power, Birla Cement, Binani Cement, Gujarat Ambuja and JK Cement. All these firms have been given coal blocks to source the fuel for their end-use plants.

While the countrys total coal production stood at 557.7 million tonnes in

FY13, captive coal output was around 36.8 million tonnes or 6.59 %.

The governments move to levy additional cess on captive coal follows the Comptroller and Auditor General of Indias report that said the exchequer had lost over R1.86 lakh crore as coal blocks were allocated to private companies sans auctions.

The additional duty would put further pressure on steel manufacturers already facing a demand crunch due to the prolonged economic slowdown. Moreover, it could also lead to increase in cement prices as the companies would choose to pass the extra cost on to consumers.

The government has allocated around 218 captive coal blocks till now and about 125-130 of these went to steel, sponge iron and cement companies.

Nearly 75-80 mines have been de-allocated as the companies concerned were unable to ensure progress as per time limits specified. Most companies whose coal blocks were de-allocated have moved the courts, challenging the decision. The UPA-led government has always maintained that coal blocks were allocated to companies without auctioning to push industrial growth and boost the country's economy.

Siddhartha P Saikia