By Saurabh Chaturvedi

January 8, 2020 - The Federation of Indian Mineral Industries (Fimi) is seeking the removal of a carbon tax on imports and domestic coal ahead of India's federal budget announcement in February.

Fimi, a key industry group that represents about 400 firms including UK-Australian mining company Rio Tinto and India's Adani, has sent a proposal to the country's finance ministry to scrap the 400 rupees/t ($5.60/t) levy on coal "to support power-consuming industries" and to help keep domestic manufacturing "competitive". The tax is over and above the existing import tax and other levies on coal.

The tax, which was introduced in 2010 as clean energy cess of Rs50/t, has been increased three times over the past few years to its current level, adding billions of rupees to a government fund.

This steep hike in the coal cess has "adversely impacted the sustainability of coal-based industries", namely aluminium, steel, power and other sectors, Fimi said in the proposal reviewed by Argus.

The fund was initially intended to finance clean energy projects. But it was repurposed in 2017 to meet a key financial need of the federal government — to compensate provinces for potential losses incurred from the implementation of a national goods and services tax.

"A decision on the proposal is not going to be an easy one for the finance ministry given the current use of the fund," a senior executive at an Indian power firm said. He is aware of an internal note sent a few months ago from prime minister Narendra Modi's office to several ministries advocating the abolition of the cess, but said that the note could be considered "a strong suggestion and not a direction". A final decision on the cess should be announced in the budget that is likely to be unveiled on 1 February.

The note from Modi's office suggested ending the coal levy partly to cut cost pressures on utilities, thus encouraging them to instead use funds to install emissions-curbing equipment known as flue-gas desulphurisation (FGD), the executive said.

The Central Electricity Authority, an arm of India's power ministry, submitted a plan to the environment ministry in 2017 for phased implementation of a directive to install FGDs in coal-based power stations accounting for more than 80pc of the country's coal-fired electricity generation capacity. The original deadline given by the environment ministry for the installation was December 2017.

The proposal to abolish the levy comes as a government panel has recommended cutting India's dependence on thermal power, partly by encouraging electricity generation from cleaner sources of energy.

Fimi also suggested that the finance ministry remove the 10pc import tax on petroleum coke. India raised the import tax from 2.5pc in late 2017 to curb emissions from consuming industries, putting pressure on imports.

The proposal also seeks to waive the import tax on anthracite to zero, from 2.5pc.

The prime minister's office and the finance and power ministries did not respond to a request for comment. A senior coal ministry official said that the matter is awaiting a decision by the finance ministry.