Contents
6 | COVER STORY
10 Tax on renewable energy equipment must be lowered to 5% on nil 14 Macroeconomic impact of GST: The possibilities and challenges
GST on mining and allied industries – a boon or a bane?
18 Steam coal offers rise in June
The new tax regime may not give the government many brownie points, but will benefit the nation in the long run.
20 Coking coal plunges in June on higher supplies 24 SCCL’s coal production edges up 2.9% in May 26 Centre backtracks on CMPFO, EPFO merger 27 Coal India’s production dips 4% in May y-o-y 28 India’s cement production down 3.7% in April y-o-y
22 | FEATURE
India’s April coal imports dip 3% y-o-y Thermal coal import stood at 13.61 mt during the month, coking coal at 3.57 mt.
31 | GOVERNMENT
29 India adds 870 MW power generation capacity in May
India’s specific coal consumption dips 8% in 3 years
32 Centre opens GST facilitation cell for stakeholders
Coal linkage rationalisation will yield potential savings of `3,000 crore, says Piyush Goyal.
35 Global coal consumption, output down: BP Report 36 Indian Railways’ May coal handling down 3% y-o-y 37 Traffic handled by major ports up 6% in April-May 38 Martin launches power railcar vibrators 39 Corporate update 42 With project sizes increasing, mining contractors must look beyond sub-200 HP levels 54 Temporary impact on Indian solar power sector as US backs off from Paris climate deal 58 E-auction data 60 Port data
4 Coal Insights, June 2017
33 | INTERNATIONAL
Coal, GCF could be key talk points at Hamburg It will be interesting to see what kind of stand New Delhi takes at the G20 Summit in July.
46 | INTERVIEW
DVC plans to retire 1,000 MW of old capacity The state-owned generator is looking for consolidation, says Andrew Langstieh, Chairman, DVC.
Cover Story
GST on mining and allied industries – a boon or a bane?
6 Coal Insights, June 2017
Cover Story V K Arora
W
ith the rolling out of the muchawaited goods & services tax (GST) from July 1, 2017, India is going to make an entry into a new era of indirect taxation. With most of the indirect taxes subsumed in one tax, GST will help the Indian economy reach new heights. It will be able to integrate the entire country as one single market with no barriers on movement of goods from one place to another, simultaneously hoping there will be greater compliance and a higher level of transparency. GST is a single tax on supply of goods and services right from the manufacturer to the consumer. It is unique and different from the earlier system wherein credits on input taxes at each stage will be available in the specific stage of value-addition, which makes GST essentially a tax only on value addition at each stage. The final consumer will thus bear only GST charged by the last dealer in the supply chain with set off benefits at all the previous stages. With the introduction of GST, India will be catching up with more than 160 countries in the world which have gone in for VAT/GST as the preferred form of consumption tax. The government feels that implementation of the system would be smooth, transparent and predominantly online which will completely eliminate the present system of paying tax on tax and its cascading effect. Considering the level of IT savviness in India, particularly at a medium-sized business level, the trading community is looking at the scenario with a lot of apprehension. It is expected that the transition would be painful and disruptive and possibly not very popular. Coming soon after demonetisation, this may not give the present government many brownie points, even though, in the long run, the system shall be beneficial to one and all. Historically, wherever VAT or GST has been introduced for the first time, 70 percent of the governments have not been voted back in power. Logically, the prices should come down but unfortunately such things generally do not follow logic.
The key philosophy
The core intent of the GST rates was to ensure that their implementation is not inflationary.
As a result, GST on sensitive food items has been fixed between 0-5 percent and transport at 5 percent. GST is meant to bring simplicity and transparency in business by making the entire country a single homogenous market. Taxes are now going to be collected by the consuming states instead of the manufacturing state. By making the process IT-based, input credit on tax paid on inputs would now be available at each stage automatically and seamlessly, thereby reducing the effective rate of GST in most cases. There would be 4 tax slabs namely – 5 percent, 12 percent, 18 percent and 28 percent. Besides, some goods and services would be kept in the list of exempt items, a cess over the peak rate of 28 percent would be imposed on certain specified luxury and demerit goods for a period of 5 years to compensate the states for any revenue loss on account of implementation of GST. All the goods and services would be kept in these 4 slabs keeping in view the present incidence of tax. GST would replace the following taxes currently levied and collected by the Centre: a) Central excise duty; b) Duties of excise (medicinal and toilet preparations); c) Additional duties of excise (goods of special importance); d) Additional duties of excise (textiles and textile products); e) Additional duties of customs (commonly known as CVD); f ) Special additional duty of customs (SAD); g) Service tax; h) Cess and surcharges insofar as they relate to supply of goods or services. State taxes that would be subsumed within the GST are: a) State VAT; b) Central sales tax; c) Purchase tax; d) Luxury tax; e) Entry tax (all forms); f ) Entertainment tax (except those levied by the local bodies); g) Taxes on advertisements; h) Taxes on lotteries, betting and gambling; i) State cess and surcharges insofar as they relate to supply of goods or services.
Major changes in the new regime
With introduction of GST, there will be no need to have multiple warehouses, one each in every state. Companies will be saving on costs of multiple establishments. Compliance costs
With the need for registration and filing of multiple returns, compliance costs are likely to go up. For medium-sized businesses, including SMEs who have just got over the ill-effects of demonetisation, any disruption will not be welcome. However, over the longer term, this will lead to consolidation and gain in market share for the organised sector at the cost of the unorganised sector. This shall have a political cost. GST network platform
A robust network platform is being erected where all returns can be accessed instantly and in a user-friendly manner. This will be helpful for revenue authorities as well as the merchants. Effect on working capital requirements
GST will increase working capital requirement across major manufacturing sectors, as there will be a tax liability on the inter-state stock transfer (which was not there earlier). Alternately, business entities will not be able to claim tax credits until shipped goods are sold. Hence, larger working capital will be required in the new regime. Impact
GST impact on iron and steel: There are three different kinds of taxes that are currently levied on the manufacture of iron and steel (in any form) and reaching the endconsumer: ♦♦ Excise Duty at the rate of 12.5 percent; ♦♦ Average VAT at the rate of 5 percent; and ♦♦ Central sales tax (CST) at the rate of 2 percent. A net tax of 19.5 percent (12.5+5+2) is charged on iron and steel under the current laws. Articles made of iron and steel are also charged at the same rate except for Punjab where the VAT rate for articles of iron and steel is 2.5 percent currently.
Coal Insights, June 2017
7
government
India’s specific coal consumption dips 8% in 3 years Coal Insights Bureau
I
ndia generated 1 kWh (kilo watts) of electricity using 0.63 kg of coal in 201617, and the amount of coal utilised was 8 percent less than 0.69 kg used to generate the same amount of electricity in 2013-14, Piyush Goyal, Union Minister of State (IC) for Power, Coal, New & Renewable Energy and Mines said in Delhi on June 12, during a media briefing on the government’s three years in power. This was in relation to the principle of less coal for more power, which would help in generating cheaper as well as cleaner electricity, the minister said. Further, coal linkage rationalisation of 40 million tons (mt) of coal will result in potential savings of about `3,000 crore. Meanwhile, the country’s ranking in ‘Ease of Getting Electricity’ by the World Bank rose from 99 in 2015 to 26 in 2017. This increment in the ranking was majorly backed number of government schemes like Ujwal Discom Assurance Yojana, which created savings of nearly `12,000 crore for discoms due to issuance of UDAY bonds worth `232,000 crore. The minister also said that the country has achieved the highest-ever 60 gigawatts of addition in conventional power, about a 40 percent increase in transformation capacity, and over one-fourth increase in transmission lines during April 2014 to March 2017, which have made India a power surplus country.
Earlier, the Centre had set a target to produce 1 billion tons of domestic coal by 2019-20. In the last three years since 2014, production of coal has increased by 92 mt. While nearly two-thirds of the power plants were reeling with critical coal stocks in 2014, there is no shortage of coal now, Goyal pointed out. Through reduced coal imports to make the nation self-reliant, foreign exchange worth `25,900 crore has also been saved, he added. In mining, the minister said, amending the legislative framework for allotment of offshore blocks will kick-start offshore mining activity. Transparent auction of 24 mineral blocks will lead to estimated revenue of over `100,000 crore to the states over the lease period of the mines. Using space technology, the Mining Surveillance System (MSS) acts as an eye in the sky to check illegal mining, he added. The National Mineral Exploration Policy 2016 aims to accelerate exploration through National Aero-Geophysical Mapping Project, which will acquire data on 2.7 million line kms of aero-geophysical data by 2019, versus 700,000 line kms in the last 30 years. FY17 sees lowest tariffs for renewable
India has reached a new high in the renewable energy sector during 2016-17, as the fiscal
saw the lowest tariffs in both solar and wind energy, Goyal said. “By introducing competitive bidding, Government has ensured that renewable energy is affordable and attractive for consumers. During 2016-17 tariff rate of solar energy stood at `2.44, and wind at `3.46,” the minister said. Further, Goyal informed that 2016-17 also marks the first year when net capacity addition of renewable energy was higher than that conventional energy. The past year also saw the highest ever addition of solar and wind power. These milestones are in relation to the mission of achieving 175 GW of renewable power by 2022. Centre eyes 50% energy saving by 2030
Meanwhile, the Centre has planned to achieve a 50 percent reduction in energy use by 2030, through the adaptation of the newly launched Energy Conservation Building Code 2017 (ECBC 2017), which was developed by Ministry of Power and Bureau of Energy Efficiency (BEE) and launched by Goyal. “The adoption of ECBC 2017 for new commercial building construction throughout the country, it is estimated to achieve a 50 percent reduction in energy use by 2030. This will translate to energy savings of about 300 billion units by 2030 and peak
Coal Insights, June 2017
31
INTERNATIONAL
Coal, GCF could be key talk points at Hamburg
Kingshuk Banerjee
H
as Washington fallen off from the high pedestal of global leader to being a virtual loner as a result of backing off from the Paris Climate deal? On the other hand, could the White House’s tilting towards fossil fuel rejuvenate the status of the fast losing global coal sector? Could this US stance mitigate the adverse impact on fossil fuel felt during the Obama regime? And what would be the future of the Green Climate Fund (GCF)? Would answers to all these questions be blowing in the wind at the forthcoming G20 Summit in Hamburg in July? It will be interesting to see what kind of stand New Delhi would take after Trump’s pro-coal stance? Till now, India was fighting for her coal since it is the biggest fuel for her power generation sector. For that very reason, at the Hangzhou G20 Summit 2016, when the US and China had formally ratified the COP21 Paris climate agreement, India opposed fixing the date for ending the fossil fuel subsidy.
According to sources, then New Delhi’s stand was that it had already been cutting fossil fuel subsidies quite a bit. Not only were there no subsidies on petrol and diesel, these petroleum products had been taxed significantly. However, New Delhi would not budge from its policy of rendering subsidies on cooking gas for the poor and supply of free electricity (power being produced mostly from coal-fired thermal plants) to farmers. But with that recent infamous Rose Garden speech of the US President Donald Trump where he announced the US’ backing off from COP 21, things have been total topsy turvy. Criticising the US stand, all other G20-member nations strongly reconfirmed their commitment towards fulfilling the Paris deal, condemning the US policy reversal. According to experts, moreover, Trump’s decision was seen as a part of a new unilateralist approach in the White House, undermining international accords and especially the role of the United Nations. The 28-nation EU repeated its “steadfast support for the United Nations as the core of a rules-based multilateral system”.
The Paris Climate Accord is an agreement within the United Nations Framework Convention on Climate Change (UNFCCC) dealing with greenhouse gas emissions mitigation, adaptation and finance starting in the year 2020. The language of the agreement was negotiated by representatives of 196 parties at the 21st Conference of the Parties (COP 21) of the UNFCCC. In the Paris Agreement, each country determines, plans and regularly reports its own contribution it should make in order to mitigate global warming. There is no mechanism to force a country to set a specific target by a specific date, but each target should go beyond previously set targets. At the Paris Conference in 2015, the developed countries reaffirmed the commitment to mobilise $100 billion a year in climate finance by 2020, and agreed to continue mobilising finance at the level of $100 billion a year until 2025. The commitment refers to the pre-existing plan to provide $100 billion a year in aid to developing countries for actions on climate change adaptation and mitigation. But after the Trump announcement, there are apprehensions of financial aspects of the deal. COP 21 includes the G-7 countries’ announcement to provide $420 million for Climate Risk Insurance, and the launching of a Climate Risk and Early Warning Systems (CREWS) initiative. In early March 2016, the Obama administration gave a $500-million grant to GCF as “the first chunk of a $3-billion commitment made at the Paris climate talks.” So far, the Green Climate Fund has now received over $10 billion in pledges. Notably, the pledges come from developed nations like France, the US, and Japan, but also from developing countries such as Mexico, Indonesia and Vietnam. According to experts, fostering economic stability; making the global economy viable for the future, including climate and development goals and establishing the G20 as a “community of responsibility” could be the three principal agendas of the Hamburg Summit. But participating nations also would know that these lofty goals only could be attainable through limiting greenhouse gas pollution and building resilience to the effects of climate change. As per the experts, G20 could make further progress on the topic of fossil fuel subsidy reform, which it has addressed
Coal Insights, June 2017
33
Interview
With project sizes increasing, mining contractors must look beyond sub-200 HP levels
V
E Commercial Vehicles Limited (VECV), a joint venture between the Volvo Group and Eicher Motors Limited, has been in operation since July 2008. The company offers the complete range of Eicher branded trucks and buses, VE Powertrain, Eicher’s components and engineering design services businesses as well as the sales and distribution business of Volvo trucks within India. Within heavy commercial vehicles, the tippers segment has been doing well – total industry volumes grew 27%, buoyed by construction, quarrying, irrigation etc. VECV itself increased its market share in tippers to 21% in FY17. Coal and iron ore applications represent almost 60 percent of VECV’s sales in mining in the last 2 years. However, with a wide range of tippers, ranging from 16T to 31T, and tailor-made offerings for various application and segments, VECV is well placed to tap the huge potential of the construction and mining industries, Siddharth Kirtane, Head, Sales and Marketing, Value Trucks, Mining Business, VE Commercial Vehicles, tells Madhumita Mookerji. The Value Trucks Mining business is a focused vertical of Eicher Heavy Duty Trucks since April 2015. Kirtane is leading the gamut of sales & marketing activities, including business and marketing strategies, profitability, sales and inventory management, retail operations, channel partner management, product & brand management with P&L responsibilities for Eicher branded heavy duty trucks in mining. Excerpts from an interview:
42 Coal Insights, June 2017
Interview
DVC plans to retire 1,000 MW of old capacity
T
he power sector in India is undergoing structural changes. While the country has long emerged as a power-surplus nation, its surplus generation capacity is posing a problem, courtesy the poor financial health of the distribution companies (discoms). These days, loss-ridden discoms seem to prefer to go to the exchange to buy power through the competitive bidding route, rather than through their power purchase agreements (PPA). In such a scenario, what would the generators do, saddled with overcapacity? Damodar Valley Corporation (DVC), set up through an Act of the Government of India way back in 1948, is struggling to stay afloat, burdened with almost 2,000 MW of unsold power and ridiculously low power tariffs. Its Raghunathpur thermal power station, commissioned in early 2016 and once the jewel in this utility’s crown, is waiting in the wings, to be hived off to a joint venture to be formed between DVC and Neyveli Lignite Corporation. But here too, a West Bengal government approval to the JV is pending for quite some time, leading to `800-crore losses from this plant alone for DVC. Under such circumstances, for Andrew W K Langstieh, who took over as Chairman of DVC in September 2014, the only option at present is to consolidate, and this also means decommissioning of several older units which cannot be retrofitted to suit the new emission norms. An Indian Audit & Accounts Service officer of the 1982 batch and, prior to joining DVC, posted in Delhi as Director General of Audit (Central Expenditure), Langstieh, however, tells Madhumita Mookerji & Konica Ghosh he is hopeful the power sector will rise and shine once there is increased participation from the private sector in the distribution space. Excerpts from a freewheeling interview: Excerpts:
46 Coal Insights, June 2017
What do you feel about the present power market scenario? Where did the discoms go wrong, in your opinion? The power market is very competitive. The country is power-surplus and tariffs are falling every day. Power is being purchased from power exchanges and demand is muted. State electricity boards (SEBs) and discoms are financially stressed and are not buying power like they used to do even 5 years back. The discoms have been suffering from high aggregate technical and commercial (AT&C) losses and this has adversely affected the power sector. On the other hand, new capacity has also come on stream, creating a demandsupply mismatch. The discoms are not buying our