Ministry moots 10-year I-T holiday for mega power projects; Cabinet likely to approve

The Power Ministry is dropping all existing pre-conditions — except the installed capacity qualifier...

The Power Ministry is dropping all existing pre-conditions — except the installed capacity qualifier — to extend fiscal concessions to new generating units under the Mega Power Policy. Under the revised policy, to be approved by the Cabinet, all projects would be entitled for customs duty exemption on project imports, a 10-year income tax holiday and deemed export benefit provided they install a minimum 1,000 MW in thermal and 700 MW in hydroelectric projects.

The only other restriction — a new norm — would be that promoters would have to sell “at least 80 per cent of power” at a tariff arrived through competitive bidding to get the mega status. These projects would then be exempted from sourcing the plant machinery through open international tender.

Projects that do not meet the above norm would have to source equipment through international competitive bidding to get the concessions. “ICB would be necessary if more than 20 percent of the generation station’s installed capacity is sold other than through the tariff-based route,” says the proposal which was revised earlier this month.

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The policy is being changed to accommodate captive and merchant power plants in the MPP as “it may not be feasible to insist upon the sale of power by tariff-based bidding alone”. While plants set up for captive use by an industry cannot guarantee a fixed electricity surplus for outside sale, a typical merchant power plant sells most of its output through auction, tying a small quantity for a dedicated buyer.

Last year, the ministry had proposed to remove existing norms of:

• Constituting state electricity regulatory commission with powers to fix tariff

• Mandatory reform by power purchasing states through privatisation of distribution in all cities with a million-plus population

• Mandatory requirement of inter-state sale of power

• Price preference of 15 per cent to domestic bidders

• Preference to state-run units in equipment purchases

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All these exemptions have been fiercely objected to by the ministries of Finance, Commerce and Heavy Industries, which argue that they would bypass the regulatory regime and provide unfair advantages to foreign bidders.

However, they all agree that benefits should be given only to projects that sell power through tariff-based competitive bidding, and not those that purchase equipment through global tender.