MUMBAI: Electricity costs are set to drop for many consumers after the government proposed waiving the 5% customs duty on imported coal. Power companies, though, will gain little.
Under provisions in the power purchase agreements (PPAs), companies including Tata Power Co. Ltd, Reliance Power Ltd, Adani Power Ltd and JSW Energy Ltd will have to pass on the benefit of the customs duty waiver to consumers, say experts.
In the Union budget for 2012-13, finance minister Pranab Mukherjee on Friday proposed abolishing the 5% duty on imported coal to provide relief to power companies struggling with high prices of imported coal.
“All the PPAs have a standard clause which says any benefit or burden arising out of changes in Indian laws will be passed on to the consumers,” said Shantanu Dixit of Pune-based Prayas Energy Group, which researches policy issues related to the energy sector. “So, in this case, the gain these companies might get due to the import duty waiver will have to be passed on to the consumers.”
Kameswara Rao, executive director and leader at consultancy firm PricewaterhouseCoopers’ energy, utility and mining practice, said the benefit of the import duty waiver “will go to only those plants that are operated on a merchant basis (and have not signed PPAs). All other plants will have to pass on the benefit to consumers”.
Gautam Adani, chairman of the Adani Group, though, welcomed the waiver, saying, “Abolition of customs duty on coal coupled with a reduction in the countervailing duty on coal imports will reduce the electricity cost for consumers and is a strong positive.”
Power companies are facing trouble because the Indonesian government has since September linked the prices of coal exported from that country to the price of coal on various international indices, effectively rendering null and void the long-term contracts signed by Indian companies with Indonesian miners.
The combined capacity of all the projects that are dependent on coal imported from Indonesia is around 14,000 megawatts (MW).
Tata Power managing director Anil Sardana, according to a PTI report on 4 February, expressed concern that the company’s 4,000MW ultra-mega power project (UMPP) would become a non-performing asset if the issue was not resolved and demanded a tariff revision to rectify it.
State government-owned power distribution companies in Gujarat,Maharashtra, Rajasthan and Haryana that have signed PPAs with Tata Power for the supply of power are opposing any raise in tariffs.
Reliance Power, which is developing an imported-coal-based UMPP at Krishnapatanam on Andhra Pradesh’s coast, had temporarily suspended work on its project because of the increased cost of importing coal, a company spokesperson said.
The existing PPAs should be reviewed and power companies should be allowed to raise tariffs for them to be able to run their plants with “reasonable profits”, said Ashok Khurana, director general of the Association of Power Producers, which represents large power-generating companies including Tata Power, Adani Power and Reliance Power.
Reliance Power has sued HT Media Ltd, publisher of Mint, in the Bombay high court over a 12 May 2010 front-page story in Mint that it disputed. HT Media is contesting the case.