India pushes for design changes in coal power plants, considers tax hike on imports

NEW DELHI: India's federal coal ministry has recommended modifications in the design of coal-based power plants to facilitate the use of indigenous coal, in a bid to enhance energy security and reduce dependence on imported coal. According to a report by S&P Global Commodity Insights, the proposal, outlined in a report released by an inter-ministerial committee on March 7, also includes considerations for imposing higher taxes on imports of coal with high gross calorific value (GCV).

The report titled "Strategy Paper on Coal Import Substitution" suggests that power plants relying on imported coal should retrofit their boilers and plants to accommodate the specifications of Indian thermal coal. This move aims to mitigate reliance on volatile international coal prices and promote the utilization of domestic resources.

Any associated costs with retrofitting are proposed to be passed on to consumers, drawing parallels to the installation of flue gas desulfurization (FGD) plants, which remove sulfur dioxides from flue gas emissions. According to the federal coal ministry, India's reliance on imported coal is anticipated to decrease below 15 per cent in the fiscal year 2024-25.

In the fiscal year 2022-23, India imported 238 million metric tons (mt) of coal, with 20 million mt procured by imported coal-based power plants. Additionally, 35 million mt was consumed by domestic coal-based power plants, while the non-regulated sector (NRS), encompassing industries like cement and sponge iron, accounted for 125 million mt.

The report also recommends mandating domestic coal-based plants to prioritize the use of indigenous coal over imports, provided there is a sufficient domestic supply and no logistical constraints.

However, the Ministry of Power has extended the directive for domestic coal-based power plants to include 6 per cent imported coal in their fuel mix until June, citing preparations for peak summer demand and potential logistics challenges. The Ministry said, "Peak power demand this fiscal is expected to hit a new record of 260 GW."

In efforts to streamline coal import substitution strategies, the report proposes that ministries responsible for NRS sectors collaborate with the Ministry of Coal to aggregate sector-specific coal requirements. This collaboration aims to facilitate effective demand planning and substitution strategies.

Furthermore, the report suggests restructuring the Goods and Services Tax (GST) compensation cess on coal imports. It recommends a revised approach based on the value and quantity of coal, contrasting the current flat rate of Rupee 400/mt. This proposed change reflects the variance in tax incidence between imported and domestic coal, primarily due to differences in gross calorific value. To enhance coal logistics, the report advocates for the development of a multi-modal transportation network.

Additionally, it emphasizes the expedited operationalization of captive and commercial coal blocks within the country. India's domestic coal production has been on an upward trajectory, surpassing 900 million mt as of March 6 in the current fiscal year. It is anticipated to reach 1 billion mt by the end of the financial year 2023-24, further bolstering efforts towards reducing coal imports and promoting self-sufficiency in energy resources