Coal royalty rates had not been revised in India since 2002. Financial Express in one of its earlier news item mentions that it is expected to be revised every three years. The delay in its revision resulted in big losses for states like Orissa and Jharkhand. Today’s news of the revised coal royalty rates is a big relief, albeit temporarily. Following are some excerpts from a report in Telegraph.

The cabinet committee on economic affairs today approved an average increase of 14 per cent in the coal royalty paid to state governments. …

“The producing states were demanding an increase in the rates as royalty on coal had not been revised since 2002,”Chidambaram said.

He added that the increase in revenues for the states, barring Bengal, would be 24 per cent for coal and 27 per cent for lignite. “The revenues of the coal-producing states will increase to Rs 3,718 crore from Rs 3,000 crore,” he said.

Following are excerpts from a Hindu report which mentions how much more states like Orissa and Kharkhand will get and the rationale behind the increase.

In a further explanation of the rationale for revision, Mr. Chidambaram said: “It is contended [by States] that while coal companies have been revising the prices frequently and since the royalty rates are fixed on tonnage basis, the benefit of higher prices has not been shared with the producing States. Consequently, the share of royalty as a percentage of coal prices has declined.” …

As for the increase in revenue for the coal producing States, it would be Rs. 152 crore for Jharkhand, Rs. 133 crore for Madhya Pradesh, Rs. 105 crore for Andhra Pradesh, Rs. 98 crore for Chhattisgarh and Rs. 90 crore for Orissa, Rs. 89 crore for Maharashtra and about Rs. 43 crore for Uttar Pradesh. In the case of Tamil Nadu which produces lignite, the State Government could expect the revenue from higher royalty to go up by Rs. 28 crore to Rs. 130 crore.

Although, this overdue increase is a welcome step, to address this for the long term the royalty calculation must change to ad valorem basis which automatically reflects the change in the market price and thus minimizes the need to depend on the center for an increase in the rates. In particular, ad valorem royalty rate of coal means that the royalty rates will move with world coal prices. Hindu Business line has an article related to this.