India: Slash power duty, coal cess to boost competitiveness - JSPL MD

Pitching for "one nation, one electricity tariff" and the need to rationalise the tax structure to boost the competitiveness of the Indian steel industry, V.R. Sharma, MD, Jindal Steel and Power Limited (JSPL), said that the INR 400 cess on domestic coal and stiff royalty rates on iron ore and coal are rendering the Indian industry non-competitive globally.

Duty drawback

While addressing participants at a webinar on boosting the steel industry's cost competitiveness in the backdrop of the prevailing tax structure, Sharma said: "The steel industry contributes 8% to the country's GST collection, not to mention the 25% tax revenue brought in by steel products. Bulk tax collections happen through the steel, power and oil sectors - major drivers of the economy."

"The 20-65 paise/kwh electricity duty that captive power producers have to bear is certainly a burden, considering the fact that these producers have to make huge investments in setting up plants and procuring coal," he maintained.

He said that these taxes and VAT contribute to making the final product exorbitant for last-mile steel users despite the fact that India has one of the lowest costs of steel production at the factory gate.

"Indian Railways have to reduce freight rates with a view to the fact that there is no proper network of inland waterways in India. For last-mile customers steel becomes very costly due to hefty freight rates," he stated.

Cost competitiveness

The 5 mn t of exports to China during the lockdown proved that Indian steelmakers' cost structure is robust, he said. But China provides 13% rebate on exports which is a huge fillip for Chinese producers. The government should take a pragmatic view to reducing taxes and levies as Capex plans in the domestic steel industry will get delayed due to prevalence of such high duties, he opined.

"I estimate that by 2027 India would have to depend on 70 mn t of steel imports if domestic investments don't pick up pace, which is unlikely to happen if the financial structure is not rationalised," he stated.

"Electricity duty in Chennai is INR 12/kwh. It is INR 8-10 in Maharashtra and INR 10 in UP. This is a major disincentive for EAF producers. INR 3.50/kwh ought to be the national electricity tariff so that INR 1.50/kwh is the charge for production of power," he stated.

Long-term perspective

In the long term, iron ore demand is going to come down as the space for recyclable materials is fast gaining ground lessening reliance on virgin ore. Coal demand is likely to evaporate by 2050 as a "gas-based economy takes over, including increasing dependence on natural gas as well as technologies such as coal gasification, coal bed methane, syngas to SNG and other ways of minimising dependence on coal gain ground.

"After 2050 there would be no takers for coal as renewables are fast acquiring a major share in the energy basket. It is better to utilise existing reserves as technological advancements would render coal use defunct after 2050. So, it's wise to use the existing resources to boost the power and other coal-consuming sectors," said Sharma.

To boost Capex in the steel industry, "the government needs to rethink its stiff tax structure, particularly myriad duties on raw materials", he said, adding that iron ore beneficiation, that is pelletisation, should get a leg up with a view to utilisation of low-grade fines, instead of focusing entirely on exports.

That will be the ultimate value-addition for low-grade Indian fines which we have in plenty, he stated.

~By Nirmalya Deb