Special Correspondent

Producing States’ revenue will increase by Rs. 718 cr.

Steel, cement to cost more

Power tariff will increase by Re. 1 per unit

NEW DELHI: Acceding to the long-pending and persistent demand of the producing States, the Cabinet Committee on Economic Affairs (CCEA) on Thursday approved a hefty average increase of 14 per cent in the royalty rates for coal, the major fuel feedstock for power generation.

With this hike in royalty that States charge on mining of coal and lignite, industrial and domestic consumers of electricity will have to pay more by way of higher tariff as the extra burden on power generating companies works out to about Rs. 700 crore in a full year. Over 70 per cent of the coal produced is utilised for power generation.

Inflationary impact

Briefing newspersons after the CCEA meeting here on Thursday, Finance Minister P. Chidambaram referred to the hike in royalty and said: “Any revision in cost will reflect in prices [at the consumer level].” Asked if the inflationary impact was not bothering him, the Minister pointed out that it was “the right of the States” to seek revision in the royalty rates and that an assurance to that effect was also given to them in Parliament, while admitting, alongside, that the Government was “still grappling with inflation.”

The increase in revenue for the coal-producing States, barring West Bengal, Mr. Chidambaram said, would be 24 per cent for coal and 27 per cent for lignite. “The revenues of the coal-producing States would increase to Rs. 3,718 crore from the current Rs. 3,000 crore,” he said. West Bengal would not benefit from the royalty revision as the State is already charging a high cess of 25 per cent on coal.

As the royalty on coal had not been revised since 2002 and States have been clamouring for an enhancement, the decision on upward revision was taken after the principles of determining the rates were considered by the Economic Advisory Council (EAC) to the Prime Minister and a study group of the Coal Ministry.

Rationale for revision

In a further explanation of the rationale for revision, Mr. Chidambaram said: “It is contended [by States] that while coal companies have been revising the prices frequently and since the royalty rates are fixed on tonnage basis, the benefit of higher prices has not been shared with the producing States. Consequently, the share of royalty as a percentage of coal prices has declined.”

According to Coal Ministry sources, the impact of the coal royalty hike on the economy would be “marginal” as power tariff would increase by Re. 1 per unit, steel prices by Rs. 64 a tonne and cement prices by Rs. 5 a tonne.

As for the increase in revenue for the coal producing States, it would be Rs. 152 crore for Jharkhand, Rs. 133 crore for Madhya Pradesh, Rs. 105 crore for Andhra Pradesh, Rs. 98 crore for Chhattisgarh and Rs. 90 crore for Orissa, Rs. 89 crore for Maharashtra and about Rs. 43 crore for Uttar Pradesh. In the case of Tamil Nadu which produces lignite, the State Government could expect the revenue from higher royalty to go up by Rs. 28 crore to Rs. 130 crore.