India advocates design change in coal-based power plants to utilise local resources, considers higher tax on imports

NEW DELHI: India’s federal coal ministry has recommended changes in the design of coal-based power plants to promote the use of 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, also suggests imposing higher taxes on imports of coal with high gross calorific value (GCV).
The report, titled “Strategy Paper on Coal Import Substitution,” recommends retrofitting power plants that rely on imported coal to accommodate Indian thermal coal specifications. This move aims to reduce dependence on volatile international coal prices and promote the utilisation of domestic resources.
The costs associated with retrofitting would be passed on to consumers, similar to the installation of flue gas desulfurisation (FGD) plants, which remove sulfur dioxides from flue gas emissions.
According to the federal coal ministry, India’s dependence on imported coal is expected to decrease below 15% by 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. Domestic coal-based power plants consumed 35 million mt, while the non-regulated sector (NRS), including industries like cement and sponge iron, accounted for 125 million mt.
The report also suggests that domestic coal-based plants prioritize the use of indigenous coal over imports, provided there is an adequate domestic supply and no logistical constraints. However, the Ministry of Power has extended the directive for domestic coal-based power plants to include 6% imported coal in their fuel mix until June due to 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.”
To streamline coal import substitution strategies, the report proposes collaboration between ministries responsible for NRS sectors and the Ministry of Coal to aggregate sector-specific coal requirements. This collaboration aims to facilitate effective demand planning and substitution strategies.
The report also recommends restructuring the Goods and Services Tax (GST) compensation cess on coal imports based on the value and quantity of coal, reflecting the tax incidence differences between imported and domestic coal.
A revised approach based on the value and quantity of coal is recommended. The current flat rate of Rupee 400/mt contrasts with this proposed change, which reflects the difference in tax incidence between imported and domestic coal due to variations in gross calorific value.
To enhance coal logistics, the report advocates for the development of a multi-modal transportation network and the expedited operationalisation of captive and commercial coal blocks within the country.
India’s domestic coal production has been increasing and is expected to surpass 900 million mt by the end of the current fiscal year. The country aims to reach 1 billion mt of domestic coal production by the end of the financial year 2023-24 to reduce coal imports and promote self-sufficiency in energy resources.
(With input from agencies)

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