States to get more from coal but you pay more

The government today approved new rates for royalty on coal and lignite, a development that will on one side enrich states like Jharkhand, Chhattisgarh and Andhra Pradesh by over Rs 1,000 crore, but on the other hand may result in higher electricity prices.

"The Cabinet Committee on Economic Affairs today approved the proposal for adoption of ad-valorem regime, in place of the present hybrid formula, for charging royalty on coal and lignite at the rate of 14% and 6% respectively," an official statement said.

Royalty rates on coal and lignite have not been revised since 2007. "The major coal producing states will now earn revenue of about Rs 6,980 crore in place of Rs 5,950 crore, being earned at present at existing rates, resulting increased combined earning by more than Rs 1,050 crore," the statement said.

An analyst with a leading research firm said higher royalty means higher coal prices, which will trickle down from power companies to common man. "Royalty on ad valorem basis with higher proportion of mine mouth price of coal is certain to increase the cost of coal procurement for consumers. This will impact the tariffs of power...," said another analyst with research firm Deloitte, Dipesh Dipu. Coal India, which accounts for almost 80% of the domestic production, however, did not comment on the development.

Royalty for both the minerals is now calculated through a formula consisting of ad-valorem plus a fixed component, which depends on the grade of coal. Ad-valorem rate is calculated at basic pit-head price and has been fixed at 5% of the invoice price, excluding taxes and other levies.