New Delhi: State-run Coal India Limited (CIL) will be paying extra royalty of Rs 100-200 per tonne of coal to the mineral-rich state of Jharkhand after the state Cabinet recently approved a change in the process of computing royalty rates. “We will definitely be paying the royalty as is payable by us in accordance with the changed rates. The increase in royalty comes to around Rs 100-200 per tonne depending on the coal grade,” CIL Chairman and Managing Director (CMD) PM Prasad told Energy Watch.
The Jharkhand government has recently made a change in the process to calculate royalty rates levied by it on coal, which will increase the royalty rates on coal supplied specifically to the power sector. Starting April 1, Jharkhand will be charging royalty on coal in accordance with the market rates. Jharkhand charges royalty at the rate of 14 percent per tonne of coal. While the rate remains unchanged, the way it is calculated has been changed.
CIL supplies coal to the power sector at lower rates since it is a priority sector dependent primarily on coal. Coal which is not consumed by the power sector is sold in the open market through an e-auction process. According to officials who spoke to Energy Watch, coal mined from Jharkhand is sold to power generating companies at around Rs 1,100 per tonne on which the state government gets a royalty of 14 percent. On the other hand, coal sold in the open market through e-auction fetches Rs 2,000-2,500 per tonne, sometimes even Rs 3,000 per tonne. According to the change approved by the Jharkhand state Cabinet, the government will now charge 14 percent royalty on this price fetched by coal in the e-auction regime and levy this charge on all coal, regardless of whether it goes to the power sector or is sold in the open market. While the royalty charged on coal sold in the open market remains unchanged, the move will increase the royalty on coal going to the power sector which might make coal mined from Jharkhand costlier for power companies.
The state government has said that the move has been prompted by the fact that it was losing a lot of revenue from coal going to the power sector as it was charging royalty of 14 percent on the notified price. Around 85 percent of the coal produced in Jharkhand is supplied to thermal power plants. Coal India undertakes coal mining in Jharkhand through three subsidiaries — Central Coalfields Ltd (CCL), Eastern Coalfields Ltd (ECL) and Bharat Coking Coal Ltd (BCCL).
On being asked about who will bear the financial burden arising out of the same, Ajit Singh, Head of Department (Marketing and Sales), CCL, said, “Any increase in levies has a cascading effect. The consumer pays more and the company passes on the benefits in the form of revenue to the state government.” After factoring in the change in the calculation of royalty, CIL will now be paying around Rs 300-350/tonne of coal to the Jharkhand government for coal sold to any entity.
Commenting on the same, the CIL Chairman said, “The way to do this is to charge the royalty from the coal consumer and pass it on to the state government.” He added that CIL is reaching out to stakeholders on the matter and is also consulting the Additional Solicitor General (ASG) on the same.
If the cost is indeed passed on to coal consumers, which in this case would be power sector companies, it would increase the cost of coal for them, inflating the cost of power. It remains to be seen how such a move will be received by the companies that procure coal from CIL subsidiaries in Jharkhand. Some of the main coal consumers of CCL, which accounts for the lion’s share of coal production from Jharkhand, includes NTPC, Damodar Valley Corporation (DVC), Jharkhand Bijli Vitran Nigam Limited’s (JBVNL) Patratu Thermal Power Station, Uttar Pradesh Rajya Vidyut Utpadan Nigam Ltd (UPRVUNL), Adani Power etc.