Cess on captive coal mines to hit steel, cement firms

Mar 22 2014, 05:44 IST
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SummarySAIL, Tata Steel & Gujarat Ambuja among those to bear the brunt.

There’s 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 ministry’s 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 ministry’s 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 ministry’s 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 country’s total coal production stood at 557.7 million tonnes in

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

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

The additional

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