India’s $555 Million Coal Tax May Fund Electricity Lines

India may use part of the 25 billion rupees ($555 million) it raises this year with a coal tax to fund new electricity-transmission lines for helping distribute power from clean energy projects.

The Finance Ministry is considering a plan to give the money to states that don’t have the infrastructure to move the power from planned renewable-energy plants, said Pramod Deo, chairman of the Central Electricity Regulatory Commission.

“It would provide viability funding to those states” to extend their transmission networks to solar plants, wind farms and other clean-energy projects being built, Deo said from New Delhi in a telephone interview on Feb 18.

India took its first step to charge companies for fossil fuel pollution with a tax on coal, lignite and peat that took effect on July 1. The levy is expected to raise 25 billion rupees in the first year for clean energy projects, Environment Minister Jairam Ramesh said at the time.

Sumit Dutt Majumder, chairman of the Central Board of Excise and Customs, declined to say how much the fund has raised when contacted by telephone today. Finance officials are in a “silent period” ahead of the government’s budget announcement Feb. 28, he said. The government hasn’t specified exactly how the funds will be used since announcing the tax during last year’s budget proceedings.

Obstacle for Renewables

The lack of a robust nationwide electricity grid is the biggest problem facing renewable energy projects and may potentially freeze investments starting later this year in some regions, Himraj Dang, director of environmental investments at Olympus Capital Holdings Asia, a Hong Kong private equity firm, told a conference in New Delhi last week.

“This is a real need the central government must look into,” Deepak Gupta, secretary at the Ministry of New and Renewable Energy, told a conference in Delhi last week. “This money should probably come from the clean energy fund.”

India’s transmission network only delivers electricity to one out of three Indians, an obstacle that threatens the growth of Asia’s second-fastest growing major economy, the International Energy Agency said in September.

Both imported and domestically mined coal, which fires more than half of the nation’s electricity generation, is taxed at 50 rupees a metric ton. Coal producers are required to pay the tax on a monthly basis, according to a document on the website of Coal India Ltd., the nation’s largest producer.

Part of the coal fund may also be allocated to states to encourage them to set higher renewable targets for themselves, Deo said.

State regulators require distribution utilities and large industrial companies producing their own power to source 0.8 percent to 14 percent of their supplies from renewable sources. States lacking wind or solar potential should be given financial incentives to make those targets more ambitious, Deo said.

To contact the reporter on this story: Natalie Obiko Pearson in Mumbai at npearson7@bloomberg.net.

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net.

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