NEW DELHI: The budget proposal to scrap customs duty on imported coal would bring down electricity generation costs by about 12 paise per unit, experts said.
Faced with acute domestic coal shortage, many power producers are banking on imported fuel to meet their needs. The scarcity is estimated to hurt about 15,000 MW capacity in the current fiscal.
In the 2012-13 Union Budget tabled today, Finance Minister Pranab Mukherjee proposed to scrap basic customs levy on overseas coal.
“The thermal power sector will benefit from reduction in custom duty on coal to nil (7.55 per cent – Indonesian coal; 10.83 per cent – other countries (including coal handling/transportation)) as it will reduce their input cost,” consultancy Deloitte Touche Tohmatsu India’s Senior Director Kalpana Jain said.
According to Jain, the move would also reduce input cost by “around USD 6/MT equivalent to 12 paise/unit of generation approximately”.
The power sector, vital for economic growth, is expected to see a capacity addition of over 80,000 MW in the 12th Five Year Plan (2012-17).
“Producers of thermal power have been under stress because of high prices of coal. I propose to ease the situation by providing full exemption from basic customs duty and a concessional CVD of one per cent to steam coal for a period of two years till March 31, 2014,” Mukherjee said in his Budget speech.
State-run Coal India has also been advised to sign fuel supply agreements with power plants — that have entered into long term power purchase agreements with distribution companies — and would get commissioned on or before March 31, 2015.
CLP India’s Managing Director Rajiv Mishra said Budget proposals such as waiving off the import duty on coal and exempting the thermal power plants from customs for two years, would bring relief to new projects in the conventional power space.
The entity, part of Hong Kong-based CLP Group, is a leading investor in the domestic power sector.
Tata Power Managing Director Anil Sardana said the removal of customs duty on imported coal, natural gas, LNG and incentives for the mining sector would marginally improve coal supply.