Road to power SEZ won’t be smooth

NEW DELHI: Trouble may be brewing for stand-alone power special economic zones (SEZs). The revenue department has raised objections to setting up of stand-alone power SEZs on the ground that such zones go against the spirit of the SEZ Act.

This would spell trouble for developers, including Essar, the Adani Group and Maharashtra Industrial Development Corporation (MIDC), keen on setting up such SEZs.

While the Essar project in Surat and MIDC proposals in Raigad and Chandrapur have not been given formal approvals, the Adani group has received the formal go-ahead for its project in Surat. The finance ministry has recently written to the commerce ministry objecting to such proposals.

According to rule 53 under the SEZ Act, a developer within the SEZ needs to have a positive net foreign exchange, calculated cumulatively for five years from the date of production. Since power projects essentially would either feed units within the SEZ or consumers in the domestic tariff area, it is difficult to see how they could generate forex earnings. Thus, the concept of a power SEZ went against the principle of giving tax breaks to projects for boosting forex earnings through exports, sources in the finance ministry said.

The government has already gone slow in approving power SEZs as norms for selling power by such zones to SEZ units and other units in the domestic tariff area (DTA) are yet to be framed. Sources added that since such zones would get all the tax benefits available to SEZs, they would put domestic power units at a severe cost disadvantage as these benefits are not available to them.

The revenue and commerce departments have also locked horns on the guidelines for captive power plants within SEZs. While the finance ministry wants that 75% of the power produced should be sold within the zone, the commerce ministry feels that the requirement should be lower.

The commerce department’s argument is that since the number of units in SEZs would not be high in the initial phase, demand for power will also be low. Power plants should, therefore, be allowed to sell more than 25% of the power produced to DTA units, it contends. The revenue department has also called for a higher tariff for power sold in DTA.