New CPCB pollution norms to hurt viability of CPP-based industries

Aluminium producers to be among worst hit

The latest pollution norms spelt out by the Central Pollution Control Board (CPCB) are bound to affect the viability of industries dependent on Captive Power Plants (CPPs) to run their operations.

According to the CPCB order, CPPs need to install Flue Gas Desulphurisation (FGD) units by June 30, 2020. FGD installation needs significant capital investment - estimated between Rs 40 and Rs 70 lakh per Mw.

CPPs are in a quandary as unlike Independent Power Producers (IPPs) and central or state owned generation utilities, they cannot pass on the hike to consumers.

"Industries based on CPPs are already struggling to stay afloat on account of steep power production costs due to a cocktail of duties, levies and cess on coal. Installation of FGDs to conform to pollution emissions norms will prove to be disastrous," said an industry source.

Coal has turned dearer for the CPPs after the government introduced clean energy cess in 2010 with levy of Rs 50 per tonne. Since then, the cess has been hiked regularly - first from Rs 50 to Rs 100 per tonne in 2014-15, later raised two-fold to Rs 200 per tonne in 2015-16 and finally raised by 100 per cent to Rs 400 in the Union Budget for 2016-17. After the roll out of Goods & Services Tax (GST), the cess has been rechristened as GST Compensation Cess, though the levy value has stayed unaltered at Rs 400 per tonne.

The sharp hike in this cess has adversely impacted the sustainability of CPP-based industries, specially the aluminium smelters where power contributes nearly 40 per cent to the cost of metal production. One tonne of aluminium production needs 14000 Kilowatt Hour (KWH) units of power which in turn guzzles 11.7 tonnes of coal.

The Cost of Production (CoP) of aluminium has rocketed by 25 per cent over the past three to five years, crimping margins for the primary producers. Hike in prices of critical inputs like coal and caustic soda, steep logistics costs and the mandate to fulfil Renewable Purchase Obligation (RPO) have precipitated the rise in aluminium production costs.

At a time when depressed international aluminium and alumina prices have failed to provide solace to aluminium makers, the mandate to install FGD has disquieted them. The alumimium industry will be among the worst hit as fresh capital expenditure of Rs 5000 crore is needed to fulfil the CPCB requirement. Aluminium makers have already sunk in Rs 45,000 crore to install CPP capacity of 9000 Mw to ensure uninterrupted power supply for their smelters and cut down dependence on grid sourced power.

Industrial power costs in India rank amongst the highest globally despite the country being endowed with the fifth largest coal deposits. A report by the government’s planning think tank NITI Aayog on ‘Need for Aluminium Policy in India’ bares the challenges of high power costs for Indian aluminium producers, thus putting them at a competitive disadvantage vis-à-vis global players.

Quoting excerpts from the NITI Aayog report, a submission by the Aluminium Association of India (AAI) to the Union finance ministry, notes that among all major aluminium producers- Canada, Russia, West Asia, Norway and China, India has the highest cost of aluminium production due to steep power costs.