Government agrees hike in coal-based power costs

India has decided to allow power companies to pass on the costs of foreign coal to customers, a minister said, a move likely to boost imports and investment in power generation, but bringing higher energy prices to consumers.

A proposal to raise gas prices has been deferred, information and broadcasting minister Manish Tiwari told reporters after a cabinet meeting.  India is the world's third-largest producer of coal and more than half the country's power comes from burning the fuel, but domestic output falls short of demand, triggering frequent and lengthy power cuts in Asia's third-largest economy.  

It also means power producers have to turn to expensive coal imports and until now, they have not been able to pass these costs fully on to customers.  The move comes as the coalition government is trying to tackle a raft of economic reforms, some of them leading to unpopular price rises and some giving benefits to powerful vote banks ahead of state elections this year and national elections in 2014.