Cabinet push for large power projects

Under the Mega Power policy, project developers enjoy a 9% excise duty exemption, besides import duty benefits

The Cabinet Committee on Economic Affairs (CCEA) on Thursday amended the Mega Power Policy of 2009 that governs duty exemptions for power projects of more than 1,000 Mw capacity. The committee mandated that sales from at least 65 per cent of a project's capacity be done through competitive bidding and the remaining 35 per cent supplied at tariffs decided by the power regulator.

Under the Mega Power policy, project developers enjoy an exemption of nine per cent on excise duty, besides import duty benefits. These translate into an overall nine per cent reduction in capital costs. At present, a developer is required to supply 85 per cent of its power under long-term power purchase agreements (PPAs) - either through bidding or under regulated rates - to avail of the benefits.

Thursday's amendment will promote offtake of power through the competitive-bidding route, besides ensuring assured power sales through the regulated channel, under which power is supplied at lower rates. The dispensation would, however, be a one-time one and limited to the 15 projects located in the states that had mandatory power tie-up policies for PPAs under regulated tariff, said an official statement.

"Through these amendments, the government is trying to ensure tie-up of power sales under the Case-I bidding route. At present, developers have been facing difficulties, as projects under Case-I bidding have failed to take off the way it was expected. Also, by mandating that at least 35 per cent of the power produced is sold at regulated rates under long-term PPAs, the government is trying to ensure that the benefit of exemptions given under the Mega Power policy are passed on to the consumers in the form of lower rates," said Salil Garg, director (corporate ratings), India Ratings & Research.

The Cabinet on Thursday also extended the timeframe given to developers for furnishing mega certificates to tax authorities for availing of the benefits.

"This announcement is more important, as many developers were finding it difficult to avail of benefits as operational issues in the sector led to delays in meeting the conditions," Garg said. The timeframe has been extended from the current 36 months to 60 months.