Cess on coal to flare up energy prices-is PSEB in position to increase prices

Finance minister Pranab Mukherjee's proposal to create a national clean energy fund through levying clean energy cess on 'coal produced in India' and imports is likely to create a corpus of above Rs 3,000 crore by the end of the fiscal year. It will also impact energy prices, which will go up around 3-4 paise per unit of power produced.

Mukherjee, while presenting the Budget 2010-2011, announced that a clean energy cess of Rs 50 per tonne would be levied to create a National Clean Energy Fund (NCEF) for financing 'research and innovative projects in clean technologies'.

Although he didn't clarify whether 'clean technology' would mean supporting India's green energy projects under the National Solar Mission or funding clean coal technology projects, observers in the coal sector felt that since NCEF is being created by taxing coal, the coal sector should get the priority in reaping the benefits.

Coal India Ltd (CIL (CUMMINS.BO : 455 +0.15)) chairman Partha S Bhattacharyya said the country is expected to produce 600 million tonne of coal in 2010-2011 and a levy of clean energy cess of Rs 50 per tonne would straight away raise above Rs 3,000 crore.

"Although this means price of coal will increase, but the fund can be utilised in developing clean coal technology much on the lines of the US department of energy's FutureGen Clean Coal Project, a facility for carbon capture and storage at commercial scale," he pointed out. However, a Rs 50 cess per tonne of coal implies 7-8% increase in the price of coal, which translates to 3-4 paise increase in the cost of power generation per unit.

"This had an impact of 5 paise for one unit of power production," Bhattacharyya said. But power sector regulators, especially state regulators, used the price increase to revise distribution tariffs. According to Tata Ryerson managing director Sandipan Chakraborty, since coal demand will continue to remain unconstrained for the growing needs of the power sector, raising a fund through levying cess on coal has been a wise initiative.

This is also supported by Bhattacharyya. He said, "setting up a coal regulator for economic pricing of coal is also a welcome measure."

Source:Indian Express Finance