In what spells tough times for Indian power and steel companies using Australian coal, the lower house of that country?s Parliament has passed a politically contentious Bill to impose carbon tax on polluting industries.
The Bill, which proposes a carbon tax of A$23 ($22.90) a tonne, is expected to be tabled before the Senate by mid-November. The proceeds will be used to fund clean energy. If the Bill becomes law, it will lead to an increase of 55 paise a unit in tariff for power plants using Australian coal, industry sources said.
Adani Power, Lanco Power and GVK Power are among Indian power companies planning to use coal from acquired assets in Australia to fire their projects. They have bagged these projects through tariff bidding route where the risk of an increase in fuel price is borne entirely by developers.
The companies put up aggressive bids to secure these projects based on the assessment that they will be able to control cost of coal from acquired mines. However, their fuel cost calculations have gone awry, with key coal-exporting countries changing coal pricing laws and taxation policy anticipating a sharp rise in India?s coal demand in coming years.
?The carbon tax will increase the cost of coal produced from underground gassy mines and mines with relatively higher cost structures. This will result in higher landed cost of coal at steel and power plants based on imported coal,? Dilip Kumar Jena, senior consultant and knowledge manager, PwC, said.
Coking coal accounts for about 30% of steel cost. Most Indian steel manufacturing companies import coking coal from Australia. For example, while SAIL meets 70% of its coking coal requirement from imports, JSW Steel?s dependence is 100%. ?The carbon tax will also increase the production cost of steel companies, which would have a cascading effect on the economy,? Jena said.
?While steel companies are free to revise product prices to pass on the increase in input costs, they might lose their competitive edge,? the PwC consultant added.
Power projects with 14,000 MW under development based on imported coal are facing possible default on supply contracts, according to the Association of Power Producers (APP), a representative body of private developers.
Indonesia, another key coal exporter, recently changed its coal pricing methodology to link it with international indices. As a result, the price of Indonesian coal will go up by $30 a tonne and lead to a 70 paise per unit increase in the cost of electricity.
Indonesia?s move has eroded the commercial viability of projects like Tata Power?s Mundra and Reliance Power?s Krishnapatnam ultra-mega power projects, forcing developers to seek tariff revision.
Reliance Power has halted work at Krishnapatnam UMPP, citing the unprecedented increase in Indonesian coal price. But the Mundra UMPP is almost ready for operations. Tata Power will lose R1 on every unit of power sold from the project if tariff is not revised.
JSW Energy?s Ratnagiri and Adani Power?s Mundra power projects are also hit hard by the change in the Indonesian coal pricing formula.
The Centre has washed its hands of the issue, saying the matter should be settled between developers and electricity-buying states. On the other hand, states like Gujarat, where assembly elections are due next year, are reluctant to take a call for fear of political backlash.