Millennium Post

Govt acted to beat uncertainty after coal block cancellations

“The government has taken quick decisions to overcome the uncertainty in the coal sector emerging from the Supreme Court ...cancelling allocation of certain coal blocks and issuing directions with regard to them,” said the Survey for 2014-15 tabled in Parliament on Friday.

The government issued the Coal Mines (Special Provisions) Ordinance, 2014 on October 21, followed by the Coal Mines (Special Provisions) Second Ordinance, 2014 in December, the official
document said.

The main purpose of these ordinances was to provide for allocation of coal mines to steel, cement and power utilities which are vital for development, it said. Besides, it added that they aim to ensure smooth transfer of rights, title, and interests in the mines/blocks along with their land and other associated mining infrastructure to the new allottees to be selected through an auction or allotment (to government companies).

The allocation of coal blocks would now be made in line with the provisions of the ordinances and rules made under them and the auction of coal blocks would be through an e-auction process in order to keep the process transparent, it said.

The methodology for fixing a floor/reserve price for auction and allotment of these coal mines/blocks has also been spelt out by the government, it added. The annual target for coal production for 2014-15 is 630.25 million tonnes (MT).

Production of raw coal during April-December 2014 at 426.7 MT increased by 9.1 per cent compared to 1.5 per cent growth in the corresponding period of 2013-14.

Though the production of coal has been increasing over the years, total imports including both coking and non-coking coal have also increased due to higher demand mainly from fuel-starved power stations, the Survey added.

‘Raise coal cess by 5 times to cut carbon emissions’

There should be a five-fold hike in coal cess to around Rs 500 per tonne from the existing level of Rs 100 per tonne in order to bring down carbon emissions drastically, according to the Economic Survey 2014-15.

This would still be within the range of keeping most coal power plants profitable given the current tariff structure, it added.

Recently, coal cess was revised from Rs 50 per tonne to Rs 100 per tonne.

The survey, tabled in Parliament on Friday, said that calculations using certain emission actors and assuming a (-0.5) price elasticity of demand for coal, suggest that a three-fold increase from current cess would lead to an annual CO2 emissions reduction of 129 million tonnes annually.

“To bring domestic (coal) prices on par with the international prices would require an increase of cess to $9 per ton or Rs 498 (a 5-fold increase),” the official document said. The survey said that coal price reforms of this magnitude could potentially contribute to annual carbon emission reduction of 214 million tonnes which is 11 per cent of the country’s annual emissions, or half the entire emissions of Indonesia in 2012 compared to the baseline.

When translated into a carbon tax equivalent, it is around $1 per tonne (an increase from $0.5 per tonne in 2014).

The government has cut subsidies and increased taxes on fossil fuels (petrol and diesel) turning a carbon subsidy regime into one of carbon taxation.

This move has significantly increased petrol and diesel price while reducing annual carbon emissions.
“But there is still a long way to go with potential large gains still to be reaped from reform of coal pricing and further reform of petroleum pricing policies,” the survey observed.

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