Power ministry seeks zero import duty on equipment

Exemption is being sought for projects that will feed inter-state regional power grids.

The proposal, however, will hit the public sector Bharat Heavy Electricals Limited (BHEL) undertaking badly. Considering that various states will purchase power from the mega-projects, a mechanism to guarantee Planning Commission funds will have to be generated in case of default in payments.

Among the sites identified for the projects are Pipavav in Gujarat, Cuddallore in Tamil Nadu, and the 4,000 MW Hirma project in Orissa — a proposal to set up a mega-project has already been submitted here, by Gordon Wu of CEPA (Southern Electric of the USnow owns 80 per cent of CEPA).

The Ministry of Finance has not finalised its views in the matter, since there will be considerable loss of revenue. While there are precedents for granting zero import duty for large projects, the Ministry does not appear to be in favour of giving an Income Tax concession for good.

Kumaramangalam has met Finance Minister Yashwant Sinha personally to lobby for the scheme on several occasions.

According to the proposal, the revenue loss from zero import duty — the Finance Ministry feels it will be around Rs 7,000 crore — will be made up by the fact that, over the medium term, there will be a substantial import of both coal and LNG for running power plants. No figures for the estimated revenue loss are, however, given. The earlier Ministry note had said that import duty on fuel imports alone would add up to around Rs 28,000 crore over the next 30 years.

To allay fears that BHEL will suffer if zero-duty imports are allowed, the Power Ministry has said it will try andensure that a large part of the orders are channelised to it, and has suggested BHEL be given a 15 per cent price preference in case the projects are executed by public sector companies, as well as deemed export benefits.

Whether BHEL will benefit is, however, open to question. For one, BHEL is not a major player in the hydel power sector and, of the four mega-hydel power projects slated to come up in the Ninth Plan, all orders have already been tied-up — none will go to BHEL. Secondly, to the extent that the mega- projects come up in the private sector, there is no way to ensure that BHEL wins the contract.

According to Power Ministry officials, if these concessions are given, the cost of power from the mega-projects should be in the region of Rs 1.8 to Rs 2 per unit as opposed to around Rs 2.8 from other private power plants currently under construction.

They say that while several other countries give duty waivers, the state-owned National Thermal Power Corporation (NTPC), for example, does not payIncome Tax while private producers do. Since NTPC is constantly setting up new plants, it is able to utilise its big depreciation benefits to avoid paying taxes. This facility is now being sought for the large private players as well.

Experts, however, believe that setting up such large projects could compound the state electricity boards’ problems. Since the SEBs are not able to bill customers for more than half the power they produce, it is argued that the main emphasis should be on plugging this lacunae first.

Otherwise, any power that the SEB has to pay around Rs 1.8 for — and around Re 1 for transmission and distribution costs — is just more money down the drain.

Interestingly, as the Power Ministry itself points out in an internal note, there will have to be a firm security package to protect the investors’ interests.

In other words, all SEBs that can buy power will have to give guarantees. The project is also likely to need firm commitments from the plan funds — this involves issues ofinter-state transfers and devolution of funds.