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Duty break on equipment for existing mega power projects

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The government is likely to exempt companies from paying on equipment imported for existing mega power plants and for which orders have already been placed.

The new tax regime, expected to protect domestic equipment manufacturers such as and Larsen & Toubro from a 21 per cent levy on imported gear, will however remove the distinction between mega and non-mega for future power projects.

Under the current policy, mega power plants do not attract any import duty on equipment. A person in the know of the proposal said the exemption was being planned to ensure projects that had mega status continued to get the incentive since they had already placed orders and signed power purchase agreements (PPAs) with distribution companies based on certain cost assumptions. The exemption is likely to benefit all major private power generation companies such as Reliance Power, Essar Power, Lanco, KSK Mahanadi, GMR and Monnet Ispat.

The has floated a Cabinet note for imposing a higher duty on imported power equipment. Power Secretary had earlier this week said the ministry had moved the note and it was likely to be taken up by the Cabinet in 15-20 days.

The Association of Power Producers (APP), a lobby group opposing the imposition of duty, said the government was making the move to protect domestic manufacturers but that would go against consumer interest. “We hope rationality prevails in the government and the duty is imposed on future projects; otherwise, we will have to demand reopening of PPAs,” said Ashok Khurana, director general, APP.

The cut-off date for the exemption is likely to be set as the date of Cabinet approval. There are 86 in the country, with capacity of 132,765 Mw. Of these, a majority, involving 66,420-Mw capacity, are in the central and joint venture sector. Another 18 private sector projects with 23,648-Mw capacity also enjoy mega power status. Besides, exemption is likely to be given to 25 private power projects with 32,450-Mw capacity, which have been granted provisional mega power status.

Mega power status is granted to those thermal projects that have a capacity of 700 Mw and above in Jammu & Kashmir and the northeast or 1,000 Mw and above in the rest of the country. In the case of hydropower projects, the threshold is 350 Mw for the identified states and 500 Mw for the rest.

The proposed duty structure will entail five per cent customs duty, four per cent special additional duty and 12 per cent excise duty equivalent to the duty levied on domestic equipment.

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