Odisha to refund excess royalty on inferior coal

New Delhi: Odisha has become the first state in the country to retrospectively refund excess royalty collected from coal consumers if they received inferior quality coal than contracted.

If adopted by other coal-producing states, coal buyers could receive significant refunds when supply quality is not up to the agreed quality.

Odisha is expected to reimburse over ₹300 crore royalty for coal supplied by Mahanadi Coalfields Ltd (MCL), a Coal India unit, between April 2015 and March 2021.

Coal consumers claim refunds from Coal India subsidiaries and Singareni Collieries Company Ltd in case they are delivered a lower grade of coal than paid for. These companies issue credit notes in such cases that can be adjusted in future payments.

However, once submitted to the state exchequer, there are no refunds made for royalty, District Mineral Fund (DMF) and National Mineral Exploration Trust (NMET) payments.

Royalty rates for coal are fixed at 14% of the price of coal, DMF at 30% on royalty, and NMET at 2% of royalty, adding to 18.48% of the cost.

In contrast, if coal delivered is of a higher grade than paid for, the differential cost including royalty and other duties is charged to consumers.

Odisha's decision addresses this anomaly, permitting adjustments in royalty and other statutory dues when inferior quality coal is supplied.

The Odisha directorate of mines issued an order on July 16 allowing MCL to adjust royalty, DMF and NMET in credit notes for grade slippage from the current month.

Refunds for the earlier period beginning April 1, 2015, will be issued after reconciliation that is already in process.

"After completion of the reconciliation process the credit note of ₹313.55 crore (aprox) towards Royalty, DMF and NMET will be issued to the consumers," said a state government official.

This order brings great relief for the consumers as it will reduce the cost of coal procurement as well as working capital requirement, the official added.

Sambalpur-based Mahanadi Coalfields had in February this year written to the director of mines that it is raising debit notes to the consumers in respect of Royalty, DMF & NMET whenever there is upgradation of coal but the credit notes in case of grade slippage are not issued as same has remained unadjusted by the state government.

The company had sought adjustments in credit notes.

Grade slippage, meaning fuel's grade during the sampling is found inferior to the declared grade, is common in the coal sector. Coal India has said in the last financial years the grade slippage incidents had reduced substantially.