India Doubles Clean-Energy Tax on Coal, Risking Debt Revamp

  • Tax raised to 400 rupees a ton from 200 rupees earlier
  • India allocates 30 billion rupees a year for nuclear energy

India doubled the clean-energy tax on coal to fight environmental pollution, risking higher electricity-generation costs at a time when the government is seeking to revive ailing power distributors.

The tax on the fuel, which fires more than 60 percent of the nation’s generation capacity, will be raised to 400 rupees a metric ton from 200 rupees, Finance Minister Arun Jaitley said in his budget speech Monday for the year beginning April 1. The government plans to allocate 30 billion rupees ($438 million) annually to come up with a comprehensive plan, spanning 15-20 years, to augment nuclear power generation, he said.

Taxing coal and promoting nuclear energy shows the government’s commitment to the environment, said Debasish Mishra, a partner with Deloitte Touche Tohmatsu India LLP in Mumbai. Still, the tax increase could have waited, especially since the government is working with the states to reduce the debt burden on state-owned power distributors.

“Several distribution companies would struggle to pass on this cost increase as their tariffs are already quite high,” Mishra said. “The government could have waited for one more year and allowed the retailers to clean up their balance sheets.”

The impact of doubling the tax will be about 0.25 rupees per kilowatt hour on average for the consumer, Mishra said.

India seeks to collect $4 billion from the coal tax in 3-4 years, federal power minister Piyush Goyal said in November.

Before it's here, it's on the Bloomberg Terminal.